Investment Philosophy

We believe that strong investment results may be achieved through bottom-up, strong stock selection with minimal exposure to risks associated with market timing or factor bets. We believe that a company’s stock price should reflect the present value of its long-term future cash flows. By looking beyond any near term issues and understanding the long-term “normalized” earnings power of a company, we can take advantage of the temporary mis-pricing of stocks. This philosophy and disciplined approach to investing has been in place since 1986 and has proved quite successful in both positive and negative market environments. 

Investment Process

Proprietary information advantage
The cornerstone of our investment process is our team of buy-side research analysts. Our career equity analysts, all industry specialists, devote 100% of their time to making bottom-up earnings, cash flow and dividend forecasts for each of the companies in our research universe. When making forecasts, our analysts emphasize normalized earnings and long-term growth rates.
Systematic valuation
The dividend discount model (DDM), our fundamental valuation model, incorporates both the current price of a stock and our analysts’ estimates to derive each stock’s dividend discount rate (DDR)—our determination of a stock’s internal rate of return. Using the analysts’ input into the valuation model, stocks are ranked into quintiles within their respective sectors based on the DDRs. The most attractive stocks are ranked in the first quintile, while the most overvalued stocks are ranked in the fifth quintile.
Portfolio construction
The portfolio managers work closely with our team of equity analysts, using DDR rankings as a tool. Based upon the valuation rankings, the manager will overweight inexpensive stocks relative to fair value and underweight expensive stocks. The portfolio managers bring judgment and experience to decide which stocks are ultimately held in the portfolio. The insights and analysis of the analysts and portfolio manager result in a portfolio of positions in which our team has a high degree of confidence and where a compelling risk-reward relationship exists.

Distinctive Strategy Characteristics

  • Leverages fundamental research insights of career sector specialists with 16 years average experience
  • Emphasize a systematic valuation process by focusing on normalized long term earnings of companies
  • Offers greater diversification of stock bets, better use of information and more efficient use of captial while maintaining full market exposure
  • Managed by senior investors, Tom Luddy, with 37 years of investment experience, and Susan Bao, with 16 years of experience, all at the firm
  • Capitalizes on insights in both attractive and unattractive stocks through the use of long and short positions, expanding the set of investment choices and alpha opportunities, as compared to a long-only strategy
  Large Cap Core Large Cap Core +
Inception date January 1986 July 2004
Benchmark S&P 500 S&P 500
Sector weights +/- 4% +/- 5%
Stock weights +/- 3%
+/- 4% for long
- 2% for short
Holdings 75~150 typically 175~250 typically