Portfolio managers and research analysts operate as a team. We bring sector and industry specialties, along with current company research and quantitative data, to collaborative daily meetings that facilitate communications, ensure unity in our objectives, and consistency in our adherence to the firm’s standards and methods.
Top-Down Macroeconomic Analysis and Bottom-Up Security Selection Investment Process
Our investment team incorporates both a top-down (macro) viewpoint and a bottom-up fundamental analysis of the industries and securities that we invest in for our client portfolios. Our macroeconomic analysis provides a basis for our investment strategies. The committee monitors important macroeconomic developments throughout the world, such as key economic indicators, our economic outlook, monetary policies and investor sentiment. Our fundamental analysis of industries and entities enables us to identify, understand and assess securities in which we invest.
Equity Investment Process
As equity investors, we seek superior long-term absolute and real returns through growth-oriented investment opportunities. We invest primarily in high-quality growth companies worldwide that have the potential to increase earnings at a faster rate than the representative index and at reasonable valuation levels.
- Identify and focus on key secular trends and their implications for investment opportunities.
- Favorable secular trends provide significant investment opportunity
- Investments are concentrated in industries and sectors with strong earnings growth prospects.
- The following secular forces have long-term investment significance for growth-oriented investors:
- Savings and Investment
- Population Aging & Consumer Trends
- Information Requirements
- We invest in industry sectors and companies with high earnings per share and revenue growth purchased at reasonable valuations in relation to industry peers, historical experience, and earnings growth rates.
- We concentrate our fundamental research efforts on the most promising growth companies with strong fundamentals including the following attributes:
- World-class or regionally dominant
- New and/or distinctive products or services
- Innovative and responsive to change
- Investment holdings generally reflect the following investment characteristics:
- High ROEs; high growth rates (projected & historical); higher relative P/E ratios; strong balance sheets; and lower dividend yields.
- Significant databases and quantitative tools (earnings revision model) identify and evaluate opportunity
- Company Specific
- Fundamentals change/earnings disappoint.
- Quantitative models indicate deteriorating earnings trends.
- Trimming holdings based on appreciation (profit taking).
- Rotating sector emphasis based on earnings outlook (e.g., selling a sector with the weakest outlook and buying sector with the most positive outlook).
- Raising cash to become defensive.
We control risk through:
- Our Philosophy, which recognizes the importance of absolute as well as relative returns.
- Our Process, which places emphasis on macro variables as well as fundamentals and valuations of individual stocks.
- Our Portfolio Diversification, which provides for broad representation in major markets as well as selective weightings in smaller markets.
- Our Stock Selection, which stresses sustained growth companies selling at reasonable prices.
- Our Sell Disciplines, which force us to emphasize the most fundamentally attractive stocks at the best valuation levels.
Regional and Country Allocation
- Our regional and country allocation recognizes the importance of the economies and markets within areas, as well as our evaluation of the key investment variables:
- Economic trends
- Earnings outlook
- Fiscal and monetary policy
- Investment valuation
- Market sentiment
- The firm’s senior investment professionals are actively involved in our macro research process and they have the final responsibility for regional and country allocation decisions.
Currency Hedging Policy
- Currency is one of the key variables in our country allocation decisions.
- Currencies are hedged on the basis of broad secular trends relative to the U.S. dollar, rather than short-term swings in foreign exchange markets.
- In the past, we have hedged both the yen and D-mark, the latter as a proxy in hedging our European portfolios.
- When our currency outlook differs from our portfolio strategy, we use financial instruments to partially remove the foreign currency exposure from the portfolio.
Fixed Income Investment Process
As fixed income investors, we seek consistent, superior risk-adjusted returns using a conservative investment style. We utilize investment-grade securities, with special emphasis on fixed income securities that provide high interest income and stability of principal. In our taxable securities portfolios we emphasize interest income, over time, provides the vast majority of a bond portfolio’s total return. The focus of our approach is to provide a high level of interest income with lower volatility of return. In our municipal securities portfolios we emphasize tax-exempt income to achieve consistently strong, risk-adjusted, after-tax returns.
|Taxable Securities||Municipal Securities|
|Sectors||Our sector/industry weightings are determined based on our view of which sectors offer the best risk/reward characteristics. Generally, we underweight U.S. Government and Agency bonds and overweight corporates, asset-backeds, and mortgage pass-throughs.||We favor revenue bonds over general obligation bonds, as they provide 40 to 100 basis points in added return, annually.|
|Duration||Our policy is +/- 20% variance from the benchmark. Our practice is +/- 10% variance.||Our use of bonds with prepayment, sinking fund and call provisions results in effective durations that are shorter than the bonds' stated maturity dates would suggest.|
|Quality||Average quality of AAA is maintained.||Average quality of AA is maintained.|
|Securities||We utilize securities which facilitate our high income/low volatility philosophy: U.S. Treasury bonds, notes, strips and TIPS; corporates primarily include financials and industrials; asset-backeds favor home equity loans mortgages and CMOs are seasoned, high coupon securities which have relatively stable prepayment characteristics and relatively short durations.||Focus on housing, healthcare, and education sectors as they possess the income advantages we seek and the call provisions we find attractive. Housing has the added advantage of very low volatility of return.|