Overview
Philosophy
We believe:
Cash flow is a better measure of corporate performance
Capital allocation is the key determinant of value creation
Wealth is created through long-term ownership of profitable growing businesses
Process
Benchmark : Russell 3000 Index
The All Cap Equity investment process, managed by the Select Equity team, is a bottom-up approach to equity selection, focused on an analysis of a company’s cash flow return on investment. We seek to identify companies trading at a discount to their intrinsic cash flow value. The investment process begins with idea generation, which narrows the universe to companies that have market capitalizations of $100million or greater at time of purchase, exhibit increasing cash flow rates of return, and have projected upside potential of at least 20%. Fundamental research further refines the universe and builds the foundation for our cash flow driver forecasts and overall thesis. Decisions on whether to buy are based on the improvement in cash flow rates of return; decisions on when to buy are based on valuation. A discounted cash flow methodology is used to calculate valuation. The methodology incorporates the current investing environment by including a market-derived discount rate based on the market’s perception of risk, inflation, taxes, default, and real return, with additional adjustments based on the company’s size, leverage, and volatility. The outcome of this process is an overall value for the business. The team utilizes its expected price target as a base and adjusts its cash flow projections and discount rate to create a range of price targets which serve as the backbone of our portfolio monitoring process. Portfolios typically hold 40-65 stocks and are constructed within well-defined risk parameters.
Portfolio Characteristics & Allocation¹ as of 9/30/2014
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