Our process begins with factor-based analysis that winnows the universe to the most attractive candidates for fundamental evaluation.
Companies meeting our criteria are ranked based on valuation and quality; this helps focus our fundamental research on the most compelling opportunities.
- Lower valuation– Below-average P/E and above-average yield
- Higher quality – Favorable quality metrics based on our proprietary quality score
Fundamental research constitutes the vast majority of the investment team’s efforts, with portfolio managers evaluating every company for consideration in the portfolio. The objective, which is achieved through rigorous analysis and spirited debate, is to evaluate each company’s ability to generate growth in sales, earnings, cash flows, and dividends, as well as the sustainability of its business model and potential risks.
Portfolio construction is a key component of the investment process, with risk controlled at the security, and sector level.
- Individual positions initiated at 0.5% - 5.0%
- Typically 40-70 positions held
- Sectors limited to initial net exposure of 4%
The sell process is also driven by consensus among the portfolio management team, and focuses on valuation, company fundamentals, and portfolio considerations.
We evaluate each holding versus our initial investment thesis in making sell decisions.
Portfolio considerations may also prompt the sale of a holding
- Trailing and forecasted P/E ratio well above market
- Yield well below market
- Quality Rank
- Company falls to lowest 20% rank in our quality model
- Increase in business, financial or management risk.
- Deterioration in business fundamentals
- Entrance of new competitors
- Regulatory / legal concerns
- Change in capital structure
- Management turnover
- Dividend cut
- Security’s weight in portfolio
- Industry or sector constraints
- Region or country constraints