Scott Eun prefers to take a longer-term view rather than favour parts of the U.S. market that are driven by momentum.
“We look at our stocks and try to determine whether or not over a reasonable time, typically about 18 months, there are things that will drive a fundamental value shift, something that will trigger markets to recognize that,” says Eun, senior vice-president at Boston-based Standard Life Investments Inc. and lead manager of the $277-million Standard Life U.S. Dividend Growth. “Whether it happens over a calendar quarter, or over a year, is less germane to us, in making sure that we are right about the stock.”
Eun, who holds about 60 names, limits single positions to 3% to 3.5% of fund assets. Focusing on dividend-paying stocks, he aims for lower volatility than the market. He allocates positions to three categories: high-yielding companies, dividend-growers and more speculative names with potential capital appreciation.
Typical of the first group is Kraft Foods Group Inc. (Nasdaq:KRFT), which has a 3.75% yield. In the second group, Eun places names such as pharmacy-services provider CVS Caremark Corp. (NYSE:CVS). Its 1.4% dividend could grow by double digits over the next few years.
The pharmaceuticals company AbbVie Inc. (NYSE:ABBV) fits in the third bucket. A spin-off from Abbott Laboratories (NYSE:ABT), AbbVie pays a 3% dividend. It produces an array of drug therapies for illnesses such as rheumatoid arthritis, and is best known as the maker of HUMIRA, an anti-inflammatory drug.
Eun says HUMIRA has done better than expected. “But, more important, there are big pipeline opportunities that they are not getting credit for,” he adds, noting that AbbVie is developing a treatment for Hepatitis C. “We are playing not so much the growth of the dividend, but that some of these pipeline drugs will work and we’ll see the stock move up.”
A native of Minneapolis who grew up in Virginia Beach, Virginia, Eun is a 21-year industry veteran. He initially planned to be a physician but changed to finance after earning a BA in economics from Harvard University in 1993. “I completed the course work to enter medical school but it was clear to me that I would not enjoy being a med student. And I don’t like things to be rote. I like solving puzzles,” says Eun. “Getting answers is appealing to me.”
Fresh from Harvard, Eun joined the health-care consulting firm APM Inc., where over the next three years he worked with hospitals, mostly on the east coast. He assisted them in adapting to the changing environment under the Clinton administration. “Our goal was to help them realign themselves strategically and reorganize their operations and lower costs.”
Eun decided to earn an MBA at the Wharton School of Business and graduated in 1998. Initially, he worked for Atlantic Medical Capital, a US$81-million venture-capital fund. As an associate, he was involved in so-called mid-round financing for smaller firms.
In 2001, when Eun was looking for an environment with greater flexibility as an investor, he was hired as a research analyst at New York-based AIG Sunamerica Asset Management. He worked on a mid-cap growth fund and a health-care and biotechnology fund. In 2004, he joined the health-care team at Dreyfus Corp. and worked as a research analyst.
As Dreyfus went through a consolidation phase in 2005, Eun moved to Lehman Brothers Capital and worked as a proprietary trader. In 2006, he left Lehman Brothers because of differences over short-term investment expectations. Looking for a more stable environment, he settled on Standard Life in late 2007, where he was allowed to have a longer time horizon. “The ability to have a strategy, where you like a stock that you believe is undervalued and can hold it through the noise — that’s what I found at Standard Life.”
After working on a small-cap fund, and then an Irish pension fund, Eun took over the firm’s US$100 million Central Reference Fund, the benchmark for a group of U.S. equity funds. He assumed responsibility for Standard Life U.S. Dividend Growth when it was transferred to Boston from Montreal in December 2011. In aggregate, he oversees about US$1.5 billion in assets.
Standard Life U.S. Dividend Growth, which carries a 3-star Morningstar Rating, returned 23% for the 12 months ended May 31, matching the median fund in the U.S. Equity category. Over the last two years, it had an annualized 21.1% return, compared to 24.1% for the median.
The fund underperformed in 2013, largely because Eun did not favour the market’s more speculative areas. “I wasn’t going to chase performance for one year — because 2014 could turn out to be a disaster,” he says, adding that he is taking a total-return approach as opposed to simply offering a high yield. “But this is the type of year that the fund should outperform.”