Process

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.

Industry/Sector Allocation

  • 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
    • Technology
    • Population Aging & Consumer Trends
    • Information Requirements
    • Consolidation
    • Outsourcing

Stock Selection

  • 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

Sell Disciplines

  • Company Specific
    • Fundamentals change/earnings disappoint.
    • Quantitative models indicate deteriorating earnings trends.
    • Trimming holdings based on appreciation (profit taking).
  • Strategic
    • 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.

Risk Control

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.
International Process

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
    • Liquidity
    • Earnings outlook
    • Fiscal and monetary policy
    • Currency
    • 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 SecuritiesMunicipal Securities
SectorsOur 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.
DurationOur 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.
QualityAverage quality of AAA is maintained.Average quality of AA is maintained.
SecuritiesWe 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.

ESG Principles

SIA’s investment decisions are based on fundamental analysis and research.  Our analysis of the suitability of an investment for a client’s portfolio includes a variety of factors.  Tangible investment factors include financial information, valuation, and macroeconomic indicators.  Intangible investment factors include those related to the environment, society, and corporate governance (ESG).  ESG factors are integrated into our investment process throughout the lifecycle of an investment.  Identifying the potential impact of ESG factors is generally a more subjective process than traditional financial analysis.  The evaluation of ESG factors is dependent on the industry, company, and management, and therefore will vary with each investment.

Portfolios are managed to provide long-term reward commensurate with acceptable risk.  Integrating ESG risk analysis into the investment process together with several other investment criteria, we believe results in strong long-term investment returns for our clients.

ESG Strategy

SIA manages an ESG equity growth strategy which invests primarily in companies that SIA believes have strong ESG practices.  In addition to the fundamental financial analysis, SIA’s stock selection process for the ESG strategy takes into consideration ESG screens from third-party providers that rank companies within an industry or sector based on several ESG characteristics, or SIA’s own analysis of a company’s ESG practices.  SIA’s attached ESG Investment Policy sets forth the procedures and criteria SIA employs to determine whether a company has strong ESG practices.