Morningstar - Fall 2019 - 80

Ten Questions

Dan Coleman of Principal Global Investors
cuts through the noise.
Laura Lallos, managing editor of Morningstar
magazine, interviewed Coleman in May.
1. What distinguishes your fundamental analysis?

What's most unique about Edge's approach is our
focus on identifying quality businesses, waiting
patiently for an attractive entry point, and
investing with a five-year horizon. Importantly, we
only consider valuation after determining a
company is one we'd like to invest in for the long
term. Our contrarian bias allows us to look
through noise, such as missed earnings, cyclical
problems, or poor investor sentiment that
may temporarily depress the price of an otherwise
strong business.
2. What makes a good dividend payer and why focus

5. Do you anticipate further rate increases this year?

We expect rates to hold steady for 2019.
However, we do believe over time that the 10-year
yield will drift higher due to wage growth,
price increases (possibly caused by tariffs), and
fiscal stimulus.
6. How do you think about risk?

Risk to us is the risk of underperformance versus
the benchmark, which we seek to minimize
using a sector-neutral approach and staying fully
invested. We work hard to understand our
companies and portfolios and use a third-party risk
system to ensure that we are not taking unintended risks. Additionally, our focus on quality
companies that pay dividends mitigates downside
risk during periods of market weakness.

on dividends in the smaller-cap space?

Daniel R. Coleman is the chief investment
officer at Edge Asset Management, a
Seattle-based investment boutique within
Principal Global Investors. Two of the
funds he manages, Principal Equity Income
PEIIX and Principal Small-MidCap
Dividend Income PMDIX, were recently
upgraded to Morningstar Analyst Ratings of
Silver; the SMID-cap strategy reopened
to new investors in May. Coleman has been
in the investment industry since 1979.
He received an MBA from New York University
and a bachelor's degree in finance from
the University of Washington.

It can vary a lot by sector, but ideally, a company
has a 2.5%-plus dividend yield and a payout
ratio between 30% and 60% with a commitment
from management to grow their dividend. We
believe the best companies can do it all-
grow revenues, grow earnings, reinvest in their
business, and return capital to their shareholders
via a dividend. Most investors don't believe
this is possible in the SMID universe. Fortunately,
their misconception is our opportunity.
3. The Fed has raised concerns about risky levels

of corporate debt. Do you agree?

We're 10 years into an economic recovery, and
businesses have taken on higher levels of debt in
general. Leverage is a core component to our
fundamental analysis, and our portfolios generally
have lower debt levels than the market as a whole.

Morningstar Fall 2019

Given our five-year investment horizon, we
are finding opportunities in every sector of the
market. Most recently, semiconductors
and auto-parts suppliers have been impacted by
tariff concerns, which present attractive valuation
opportunities over our investment horizon.
8. What's the best advice you've received?

Early in my career, my grandfather asked me
how you can invest in anything that doesn't pay
a dividend. At the time, I disregarded his
sage advice. Only through time and investment
cycles did I come to realize he knew what
he was talking about.
9. What do you enjoy doing when you aren't investing?

Cycling with my wife, snow skiing, and spending
time with my five boys.

4. Is a U.S. recession on the horizon?

We don't believe that a recession is on the
horizon. The economy can continue to
grow at muted levels for many years due to
a healthy consumer, low inflation, and a Federal
Reserve that remains cautious.

7. Where are the most attractive opportunities today?

10. Where do you take friends visiting Seattle?

A great day in Seattle includes boating
on Lake Washington, enjoying pasta and red wine
at Il Terrazzo Carmine, and seeing the Seattle
Mariners win a ballgame.

Morningstar - Fall 2019

Table of Contents for the Digital Edition of Morningstar - Fall 2019