Market inefficiencies are a result of human behavior. As the same behaviors persist over time, market anomalies will not disappear. We believe that through a disciplined, dispassionate approach to investing we can identify and exploit these anomalies. In this strategy, we seek companies having the following traits:
- Quality: those with high quality earnings
- Deployment of capital: firms with skilled management teams who prudently deploy capital
- Valuation: stocks that trade at a discount to their peers
The team employs a four-step investment process which first employs a disciplined methodology that seeks to identify stocks in each economic sector that are high quality stocks and are attractively valued. We then use an optimizer to help create a portfolio of well-diversified, compensated risks that seeks to deliver consistent returns.
For each trade suggested by the optimization, the portfolio managers do in-depth qualitative company research to ensure that the trade helps achieve the goal of a well-diversified portfolio that meets the team’s investment thesis.
Finally, sophisticated trading techniques ensure that the trades are executed in a cost-effective manner, ensuring that the alpha of the strategy is not unduly encumbered by trading costs.
Distinctive Strategy Characteristics
- Seasoned investment team: Phillip Hart and Dennis Ruhl have been working together on the J.P. Morgan Behavioral Finance team for the past ten years.
- Combined approach: Hybrid investment process blends the best of quantitative and qualitative research.
- Style purity: Portfolio construction ensures style purity and improves one’s ability to manage portfolio-level, stock-specific, and common-factor risks.
- Optimal use of technology: Advanced efficient trading techniques maximize use of low cost crossing networks, allow for a more opportunistic provision of liquidity, and enhance sector-specific traders’ focus on key trades.
- Seeks a target tracking error: 3% to 4%