Systematic. Quality. Value.

Barrow Long/Short Opportunity Fund

Fund Objective

The Barrow Long/Short Opportunity Fund is a U.S. all-cap long/short equity fund that seeks long-term capital appreciation while also attempting to reduce volatility and preserve capital during market downturns.

Barrow believes that capital appreciation with reduced downside volatility can be generated by systematic investment in diversified portfolios of companies that Barrow considers to be:

  1. High quality and significantly undervalued (long positions)
  2. Low quality and overpriced (short positions)

Fund Strategy


The Barrow Long/Short Opportunity Fund seeks to achieve its investment objective by implementing Barrow Street's proprietary Quality-meets-Value (“QMV”) strategy, which is grounded in Barrow Street's extensive experience with private and public equity investing since 1997. QMV evaluates and ranks the quality and value of companies based on various factors, including, without limitation, market pricing, intrinsic value, return on capital, profitability, cash flow, growth, and debt level.

The Barrow Long/Short Opportunity strategy seeks capital appreciation with reduced downside volatility by:

  • Investing with a Margin of Safety† in companies that Barrow considers to be high quality and significantly undervalued (long positions) or low quality and overpriced (short positions)
  • Diversifying across companies, market capitalizations, industry sectors, and long/short portfolio weightings
  • Deploying an investment process that is disciplined, dispassionate and patient

The Fund seeks to invest in the best opportunities (both long and short) in the U.S. stock market on a regular basis. The Fund excludes companies with insufficient data, certain risk factors, and unattractive industry or business characteristics. The Fund ranks the quality and value of companies based on various factors, including market pricing, intrinsic value, earnings power, return on capital, profitability, cash flow, internal growth, and debt level.

The Fund buys companies with the highest QMV rankings and sells short companies with the lowest QMV rankings. It also seeks to maintain significant portfolio diversification across companies, three market capitalization segments (large, mid and small), multiple industry sectors, and long/short portfolio weightings.

Barrow invests for the long term allowing the markets time to reappraise a company's value and price. The Fund typically sells its long positions and covers its short positions in companies that no longer receive adequate QMV rankings for investment.

Portfolio Characteristics

As of 9/30/17
 
  Long Positions Short Positions All-Cap Index*
Operating Metrics
Return on Equity 25.5% 04.8% 08.4%
Return on Assets 10.7% 01.7% 01.9%
Leverage Ratio 18.9% 19.7% 32.0%
Operating Margins 16.7% 0-0.9% 08.9%
Y/Y Sales Growth 9.9% 010.4% 7.5%
Valuation Metrics
EBITDA Multiple 11.4x 38.3x 14.3x
PE Ratio 20.5x 35.7x 33.2x
Weighted Average Market Cap ($B)
  $12.9 $15.1 $16.6
Companies
  241 436 967

*Average of three indices: S&P 500, S&P Mid 400 and Russell 2000.
For each portfolio attribute shown (for example, Return on Assets), the Advisor defines the All Cap Index as the average of that attribute's value, as reported by Bloomberg, for each of the S&P 500, the S&P 400, and the Russell 2000 indices, with each receiving an equal weight.

Sector Allocation
(% of Portfolio)   Long   Short
Consumer Discretionary 21.8% 21.5%
Consumer Staples 20.9% 21.1%
Health Care 20.1% 20.6%
Info Technology 13.2% 13.1%
Industrials 9.5% 8.8%
Materials 8.2% 8.3%
Energy 6.3% 6.3%
Total 100.0% 100.0%
(% of Equity)   Long   Short   Net
Consumer Discretionary 28.4% (19.3%) 09.0%
Consumer Staples 27.2% (18.4%) 8.8%
Health Care 27.2% (18.6%) 8.6%
Information Technology 17.3% (11.7%) 5.6%
Industrials 11.2% (8.1%) 3.2%
Materials 10.7% (7.5%) 3.2%
Energy     8.2% (6.5%) 1.6%
Total 130.2% (90.1%) 40.1%

Sector Allocation is the investment of certain proportions of a portfolio in securities of companies in certain sectors.

Market Cap Allocation
Long Positions % of Portfolio Weighted Avg.
Market Cap. ($B)
Large Cap 18.9%   $49.0
Mid Cap 39.6% 00$7.4
Small Cap 41.5% 00$1.6
Short Positions % of Portfolio Weighted Avg.
Market Cap. ($B)
Large Cap 19.5%   $60.8
Mid Cap 38.9% 00$6.9
Small Cap 431.6% 00$1.4

Market Cap Allocation is the investment of certain proportions of a portfolio in securities of companies with certain market capitalizations.

Top Ten Holdings
Long Positions
Sanderson Farms Inc. 1.44%
Medifast Inc. 1.42%
Lancaster Colony Corp. 1.37%
Hostess Brands Inc. 1.36%
Energizer Holdings Inc. 1.36%
B&G Foods Inc. 1.34%
Conagra Brands Inc. 1.33%
NuSkin Enterprises Inc. 1.33%
Vector Group Ltd. 1.32%
JM Smucker Co. 1.32%
Total 13.60%
Short Positions
Acadia Healthcare Co. (0.83%)
Patterson Co. (0.80%)
Flowers Foods Inc. (0.77%)
Henry Schein Inc. (0.77%)
Snyders-Lance Inc. (0.77%)
McCormick & Co. (0.77%)
Seaboard Corp.  (0.76%)
National Beverage Corp. (0.75%)
Hain Celestial Group (0.74%)
Treehouse Foods Inc. (0.74%)
Total (7.70%)

Fund holdings and sector allocations are subject to change at any time and should not be considered recommendations to buy or sell any security.

* Return on Equity is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Return on Assets is an indicator of how profitable a company is relative to its total assets. Calculated by dividing a company's annual earnings by its total assets. Leverage Ratio is used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. Operating Margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. Y/Y Sales Growth is method of evaluating sales growth over one time period with those from another time period (or series of time periods), on an annualized basis. EBITDA Multiple is a financial ratio that measures a company's return on investment. PE Ratio (price earnings ratio) is a valuation ratio of a company's current share price compared to its per-share earnings. Barrow Funds reports a "trailing PE Ratio" by taking the current share price and dividing by the total EPS over the past 12 months and caps the ratio limit at 100x. 12M Dividend Yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price.

Performance

As of 9/30/17
    Total Annualized Returns
  YTD 1 Year 3 Year Since Inception*
Barrow Long/Short Opportunity Fund -2.84% -3.51% -0.18% 0.23%
S&P 500 Index 14.24% 18.61% 10.81% 13.55%
Barclays U.S. Aggregate Bond Index 3.14% 0.07% 2.71% 3.20%

Net Expense Ratio: 4.23%
Gross Expense Ratio: 4.67%
 

*8/30/13

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end is available by calling 1-877-767-6633. Barrow Street Advisors LLC (the "Adviser") has contractually agreed, until October 1, 2018, to waive Management Fees and reimburse Other Expenses to the extent necessary to limit total annual fund operating expenses to an amount not exceeding 1.74% of Institutional Class shares, respectively, of average daily net assets. Management Fee waivers and expense reimbursements by the Adviser are subject to repayment by the Long/Short Fund for a period of three years after such fees and expenses were incurred, provided that the repayments do not cause Total Annual Fund Operating Expenses to exceed the foregoing expense limitations. Prior to October 1, 2018, this agreement may not be modified or terminated without the approval of the Board of Trustees. This agreement will terminate automatically if the Fund's investment advisory agreement with the Adviser is terminated.The S&P 500 Index is an unmanaged index of equity prices and is representative of a broader market and range of securities than is found in the Fund's portfolio.

Risk

Barrow seeks to actively mitigate risk and reduce volatility by:

  1. Investing with a wide Margin of Safety†, or large gap between market price and intrinsic value, as determined by Barrow
  2. Diversifying across companies, market capitalizations, many industry sectors, and long/short portfolio weightings
     
    • Large number of positions, including 150-250 longs and 600-800 shorts
    • Maximum position size is generally 3% for longs and 1.5% for shorts
    • Three market cap segments (large, mid, small) typically represented in the portfolio
    • Multiple industry sectors
    • Active management of long and short portfolio weightings
  3. Avoiding high corporate debt levels for the long portfolio

Fund Information

As of 9/30/17
Ticker BFSLX
CUSIP 90386H800
Minimum Investment $2,500
Gross Expense Ratio 4.67%
Net Expense Ratio 4.23%
Adjusted Net Expense Ratio 1.74%
Net Assets $17.1M
Fund Inception 8/30/13
Primary Benchmark S&P 500 Index

Barrow Street Advisors LLC (the "Adviser") has contractually agreed, until October 1, 2018, to waive Management Fees and reimburse Other Expenses to the extent necessary to limit total annual Fund operating expenses to an amount not exceeding 1.74% of Institutional Class shares, respectively, of average daily net assets. Management Fee waivers and expense reimbursements by the Adviser are subject to repayment by the Barrow Long/Short Opportunity Fund for a period of three years after such fees and expenses were incurred, provided that the repayments do not cause total annual fund operating expenses to exceed the foregoing expense limitation. Prior to October 1, 2018, this agreement may not be modified or terminated without the approval of the Board of Trustees. This agreement will terminate automatically if the Barrow Long/Short Opportunity Fund's investment advisory agreement with the Adviser is terminated.

† Margin of Safety: Benjamin Graham, considered to be the father of value investing philosophy, wrote "the 'margin of safety' resides in the discount at which the stock is selling below its minimum intrinsic value, as measured by the analyst." Graham, B. and Dodd, D. (1951) Security Analysis. New York, NY: McGraw-Hill.

For more information, please contact us at:

(877) 767-6633 or (203) 391-6100

info@barrowfunds.com

Corporate Office
300 First Stamford Place
3rd Floor East
Stamford, CT 06902