Portfolio ConstructionEmploying our disciplined, bottom-up approach, we invest in both core growth companies and companies that are experiencing rapidly accelerating growth related to a business catalyst. We seek to manage our risk with relatively equal weight positions utilizing a blend of core growth stocks and earnings catalyst stocks.
Core Growth Stocks: We seek to identify high quality, established, well managed companies with strong business franchises; companies that have a competitive advantage in growing markets; and companies that exhibit sustainable, above average revenue and earnings growth rates. Core positions may lend stability to the portfolio because of their earnings consistency. Investors tend to reward companies exhibiting long-term sustainable growth characteristics with premium valuations.
Earnings Catalyst Stocks: We seek to identify companies with a significant positive business catalyst that translates into accelerated earnings growth. The catalyst for change may come from within the company or it could be attributed to an event in the marketplace. Positive changes can typically lead to a period of better than expected revenues, and/or earnings revisions and potentially price/earnings expansion.
Owning both core growth and earnings catalyst stocks at all times should yield a portfolio with better stability in down markets while allowing for significant upcapture potential in strong markets, hopefully yielding competitive returns with lower volatility. Many investment managers own a set type of stock that will perform well in some markets and poorly in others, whereas our balanced approach should offer us opportunities given whatever conditions exist. We believe that the combination of these two types of stocks creates a “self-correcting mechanism" within our portfolios, such that in periods of strong economic growth, we will be shifted towards catalyst companies which typically have higher betas, and in periods of slower growth we will be more concentrated in our core growth holdings which should provide more stability and consistency to the portfolios.
Beta: A statistic that measures the volatility of the Fund, as compared to that of the overall market. The market's beta is set at 1.00; a beta higher than 1.00 is considered to be more volatile than the market, while a beta lower than 1.00 is considered to be less volatile.