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Tributary Capital Management maintains balanced portfolios for investors seeking both capital appreciation and preservation of capital with income generation. Balanced portfolio assets are allocated among stocks, fixed income securities and cash equivalents. The allocation decision is actively managed and based on the expected return and risk of the various asset classes. The macroeconomic environment, market conditions and relative valuations of the asset classes are key factors in the decision. High valuation levels, or elevated risk to forecasted returns, would result in a reduced allocation to a particular asset class. The objective of our asset allocation decision is to reduce portfolio risk to the lowest level possible for a targeted return.
Tributary Capital Management seeks to maximize long-term, total return while limiting risk as much as possible by optimally diversifying the portfolio. Our approach to equity investing identifies growth companies in a broad range of economic sectors and industries in a bottom-up process. We search for companies that have established a sustainable competitive advantage. Our mission is to discover companies with growth characteristics that are superior to their peer group and to establish positions in these companies at a reasonable valuation. We believe active portfolio management, based on bottom-up research and disciplined buy and sell decisions, can add value by limiting risk and increasing investment returns over time.
• Stock selection: An experienced team of investment analysts, assigned by economic sector and industry, seeks to identify companies with growth rates greater than their respective industry averages. The investment team first identifies companies with sustainable above average growth in sales, earnings and intrinsic value. Common characteristics include technological leadership, product innovation, research and development advantages, lower cost production, and proven management skill. Companies selected are typically well established, have a superior historical record and an expectation that their above average growth in earnings will continue. The final component of the stock selection process is the valuation overlay. To maximize return and minimize risk, we buy these growth companies at reasonable valuations. Multiple valuation measures are used including price-to-earnings (P/E) and price-to-earnings-growth (PEG) ratios.
• Portfolio Construction: Diversification strategies are employed to control risks embedded in equity portfolios. First, our approach avoids concentrations in economic sectors, diversifying portfolios across a broad spectrum of industries. This limits the potential for any one economic sector to negatively impact portfolio returns. Second, we avoid concentrations in one company and diversify the portfolio across 50-70 individual stocks. This limits the potential for any one company to harm the portfolio.
We actively manage bond portfolios designed for total return, while providing stable income and portfolio principal protection. For the bond allocation, our portfolio managers believe that non-leveraged, intermediate-term, investment grade bond portfolios will maximize returns while minimizing risk. Our performance history indicates that our utilization of a broadly diversified portfolio with an intermediate maturity range is the optimal combination. A client can expect to see a mixture of Treasury, agency, and investment grade corporate bonds in a portfolio.
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. Spread analysis plays an important role in the weighting of our bond portfolios between sectors, maturities, and quality. Continual monitoring of changing spread movements among fixed income assets provides opportunities for additional yield and decreased risk.
Stock selection and portfolio construction are team processes involving all portfolio managers and analysts. Company research and specific recommendations are presented to the entire investment team. The group considers the attractiveness of individual equity recommendations in the context of the company, industry and portfolio. The analysis includes the advantages/disadvantages of the company relative to the economic sector utilizing factors specific to that industry. The senior portfolio manager is responsible for decisions regarding individual bonds. As senior/lead portfolio manager, David Jordan is responsible for the final decision regarding portfolio recommendations.
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