Our job as we see it is to buy cash flows as cheaply and as safely as we can. Accomplishing the first part – buying cash flows cheaply – is more challenging today after stocks have roughly tripled since March 2009. Most stocks are trading in a range of fair to full value. Since we're looking for undervalued stocks, not fairly valued, our purchase activity continues to be on the low side.
We invest across the market-cap spectrum in the three portfolios we manage – Artisan Value Equity, U.S. Mid-Cap Value and U.S. Small-Cap Value. In our large-cap Value Equity portfolio, finding interesting opportunities is a bit easier. In a focused portfolio of about 30 to 40 holdings, we only have to find a few standouts relative to our process.
We also think large caps are one of the more appealing areas of the U.S. stock market currently, since they are higher quality and cheaper relative to the rest of the market. Their valuation advantage is not surprising, given that small-cap stocks have outperformed large caps during the current bull market. Large-cap companies also have stronger balance sheets and superior returns on capital, so we believe we're able to buy better businesses at relatively cheaper prices now.