Cover | Published in August 2013

2013 Best Managers You’ve Never Heard Of

By John Keefe | August 2013
Page 3 of 6 View Full Article
Wesley Allsbrook

Huber Capital Management LLC

El Segundo, California

Assets under management as of June 2013: $2.3 billion

Joseph R. Huber 

CEO/CIO since 2007

Age 44

Previous position: Principal and director of research for Hotchkis & Wiley Capital Management

Joe Huber set up a firm of his own in 2007 after successful portfolio management tenures at two large managers, Hotchkis & Wiley and Goldman Sachs Asset Management. This convinced him that value equity management is practiced best on a small scale. “Academic research says that large-cap managers can’t outperform their benchmarks, because the equity market is too efficient. I disagree entirely,” Huber says. “The fallacy is that 99% of large-cap assets are managed by firms with portfolios over $10 billion, and their scale forces them to invest only in the largest securities. In my view, the holy grail of bottom-up investing is to have a big universe to pick from. Huge inefficiencies exist in the market, but large managers can’t take advantage of them due to the size of their strategies; therefore, they don’t have the opportunity to sustainably outperform.” Not satisfied with simply beating benchmarks, Huber wants to be the top firm, bar none.

Huber, age 44, applies a highly regimented bottom-up investment process to the universe of U.S. value equities, designed to exploit the market’s tendency toward mean reversion—that is, buying companies with weak returns on the cheap in anticipation of improvement. “We invest over a three- to five-year horizon, in companies that have what we call ‘good long-term assets’—competitive advantages in their brands, scale and distribution,” he explains, adding, “Combined with a decent balance sheet, which allows time for the reversion to take hold, such companies represent opport­unities for quicker success.” Portfolios are fairly concentrated, holding between 40 and 50 positions.

The firm’s methodology builds in protection against dud stocks through several levels of controls. An initial review identifies value traps—those businesses that look good on the surface but ultimately underperform. A painstaking method for estimating earnings and cash flow deconstructs complex companies into their constituent parts, which Huber believes gives more accurate assessments of earnings, cash flow and profitability than simple extrapolations of the consolidated totals. Huber also maintains, as he puts it, a “red flags” list. “That’s a compilation of mistakes that, with 20/20 hindsight, there was some sort of signal before the company blew up.”