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Tributary Capital Management maintains balanced portfolios for those investors seeking both capital appreciation and preservation of capital with income generation. The process of determining the balance between equity and fixed income for clients is an ongoing process. Market conditions are continuously monitored to establish an appropriate allocation. Tributary Capital Management seeks to maximize long-term, total return, with appropriate diversification to market sectors to reduce risk. Our style of equity investing emphasizes growth companies utilizing a broad range of industries and does not believe in sector speculation. Stocks are selected using a "bottom-up" process rather than relying entirely on information that Wall Street has developed. Our approach takes into consideration intrinsic value, profitability of business, current valuation and growth potential. Intrinsic value measures include cash flow, growth in revenue and gains in market share among others. Active portfolio management should add value by limiting risk and increasing investment returns. For the fixed income portion of the portfolio, we actively manage bond portfolios designed for total return providing stable income while protecting principal. Our performance history indicates that our utilization of a broadly diversified portfolio and intermediate-term maturities is an optimal combination. A client can expect to see a mixture of treasury, agency, and investment grade corporate bonds in a portfolio.
An experienced team of investment analysts, assigned by economic sector and industry, seeks to identify companies with growth rates greater than the market and industry averages. Companies are selected in each industry on their ability to demonstrate a sustainable competitive advantage. Common characteristics include technological leadership, product innovation, research and development advantages, lower cost production, and proven management skill. Companies selected are well established, with ample research analyst coverage, a superior historical record and a reasonable assurance of sustainability of that record into the future. Our investment staff avoids concentrations in economic sectors or industries to reduce risk, diversifying portfolios across a broad spectrum of industries.
Our fixed-income approach focuses on the total return of the portfolio. We analyze the current investment environment, yield curve, and risk/return relationships throughout the fixed-income market; however, we do not attempt to forecast the general direction of interest rates. This strategy allows the team to construct fixed-income portfolios that optimize the relationship between sector allocation, yield curve changes, and maturity. Continual monitoring of changing spread movements among fixed income assets provides opportunities for additional yield and decreased risk.
An average earnings growth rate for the previous five years that exceeds the benchmark is a primary criterion for equity selection. All fundamental factors play a role in valuing a company for investment, but the price-to-earnings ratio provides the most visible, universally applied metric. Our approach avoids absolute concentrations in individual industry sectors, attempting on an absolute basis to keep allocations to individual industries and economic sectors as low as possible. Some of the fundamental factors include revenue, cash flow and earnings growth.
For the fixed income allocation, our managers believe that non-leveraged, intermediate-term, investment grade bond portfolios will maximize returns while minimizing risk. Spread analysis plays an important role in the weighting of our bond portfolios between sectors, maturities, and quality.
Strategy and security selection are team processes involving all analysts. Final decisions rest with the Senior Portfolio Manager, David Jordan. Each analyst performs an industry review to identify the most attractive companies in that industry, screen for relative value and then present the results to the rest of the group. The group considers the attractiveness of individual security recommendations. They analyze the advantages/disadvantages of that particular security to the portfolio of securities utilizing a number of variables specific to the industry or economic sector.
We eliminate the stocks of companies whose growth has slowed in comparison to competitors or the market or companies that have failed to meet our expectations. If a stock has lost the competitive advantage within its industry, it is sold. If a stock has risen to the point that the valuation exceeds what we consider the high water mark relative to the forecasted growth rate and to competition, the stock would be sold. If we become aware that a company or its management has engaged in questionable business or accounting practices or its products are determined to pose health or safety risks, the stock is sold.
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