Core Equity Strategy.
Exploring our Equity Philosophy
Buying great businesses for fair prices and holding them for the long run should position investors for attractive through-cycle returns. We believe companies capitalizing on secular growth opportunities are positioned to compound shareholder value over the long term.
Equity Portfolio Construction
Our objective is to deliver competitive returns over a market cycle while mitigating portfolio volatility.
Our equity strategy serves to provide US large-cap public equity exposure through a moderately concentrated portfolio of 30 to 50 large cap US stocks based on proprietary bottom-up analysis. We typically size equity positions between 2% and 5%, prioritize security selection over sector tilts, and aim to keep the strategy fully invested over the market cycle.
We employ a sell discipline that includes trimming or selling stocks that have:
Exhibited a material change to our investment thesis
Moved adversely for an extended period
Illustrated weaker characteristics than a replacement
We also manage portfolios in a tax aware manner.
Our Security Selection Process
Fundamental, bottom-up investment research drives the decisions we make.
We evaluate prospective investments against our growth, quality, and value criteria:
Growth
We look for companies with track records of through cycle free cash flow per share growth, and companies serving growing end markets.
Quality
We look for companies with strong management teams which produce robust returns on invested capital and can reinvest shareholders’ capital at attractive rates long term.
Value
We seek stocks that trade at a discount to our estimate of intrinsic value. We use a range of valuation metrics including price/earnings (P/E), enterprise value/EBITDA, and price / free cash flow (P/FCF) ratios to build those estimates.
ESG
We look for companies which take a proactive approach to managing their environmental footprints, companies which perform well across social impact metrics, and companies with good governance practices. We believe leadership across those dimensions can represent sustainable sources of shareholder value creation long term.
We typically evaluate new investments using a 3-5 year+ time horizon. Our ideal holding period is forever.
Our View
An Integrated Approach to Investing
Our equity strategy serves to provide U.S. large-cap public equity exposure through a concentrated portfolio of 30 to 50 stocks primarily found in the S&P 500 based on proprietary bottom-up and ESG-integrated analysis.
Our security selection process is driven by fundamental, bottom-up investment research. We evaluate prospective investments against our growth, quality, value and ESG criteria. Those security selection criteria dovetail with our long-term approach to equity investing. We typically evaluate new investments using a 3-5 year+ investment horizon. Our ideal holding period is forever.
Most positions are sized between 2% and 5% of portfolio value. However, we can deviate from that range. We prioritize security selection over sector bets and aim to keep the strategy fully invested over a market cycle. We employ a sell discipline that includes trimming or selling outright stocks that have:
- Exhibited a material change to our investment thesis
- Moved adversely for an extended period versus normal volatility
- Illustrated weaker characteristics than a recommended replacement
To Our Fundamental Research
- Earnings Growth Potential
- Reasonable Valuation
- Robust Quality Characteristics
- Comprehensive ESG Profile
We view the understanding of ESG criteria as an extension of fundamental analysis and, subsequently, an additional layer of risk mitigation.
ESG Criteria
Environmental
- Efficient use of energy, including resources dedicated to alternative energy, energy efficiency and green initiatives
- Resource utilization, including efforts to minimize pollutants, reduce waste and employ sustainable resources
Social
- Corporate culture, including thoughtful supply chain practices, constructive labor relations and workplace safety
- Community engagement, including improving localities and creating affordable real estate
Governance
- Good governance practices including strong board oversight, appropriate executive compensation, and diversity across senior leadership
We believe our focus on ESG integration is a natural complement to our long-term quality-oriented philosophy. That is rooted in our conviction that evaluating companies’ approaches to environmental, social and governance issues can give us a more complete understanding of the breadth of their competitive moats, and the strength of their business models.
Download our fact sheet below to learn more about ESG integration.
