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Since 2005, this strategy has looked to maximize long-term, total return while seeking to limit 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 then search for companies that have established a sustainable competitive advantage. Our mission is to discover companies with growth characteristics that are believed to be 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 strong 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 what we believe to be reasonable valuations. Multiple valuation measures are used including price-to-earnings and price-to-earnings-growth ratios.
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.
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 managing director is responsible for the final decision regarding portfolio recommendations. Three fundamental sell triggers: - Growth: If the rate of growth in sales or earnings slows, or fails to meet our expectations, or the company has lost its competitive advantage within its industry, the stock is sold.
- Valuation: If the company's valuation exceeds our high water mark relative to the forecasted growth rate and to competition, the stock is sold.
- Questionable Business Practices: We eliminate stocks if we become aware that a company engages in questionable business or accounting practices.
The Growth Equities Team can be found here.
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