We believe having a strategy based on analyzing and interpreting specific fundamental data makes it easier to remove emotional biases from the investing process. The Fund's strategy is based on analyzing proprietary behavioral signals to identify confidence in a company from different areas of the market. By utilizing signals from distinct areas of the market, the strategy seeks independent validation of each signal with respect to a specific security.
This shows that management is confident that it can continue to generate cash flow into the future.
Due to the large negative implications for the price of a stock if a dividend is cut, management needs to be certain it can sustain or even grow future
This is expressed by screening for companies that analysts believe will have attractive valuations relative to earnings potential.
Creditors spend a large amount of time analyzing a company, both before and after the debt is issued.
Creditors would not provide financing if they did not believe in the strength and stability of the company.
Creditors continuously evaluate the company's financial strength as part of the debt covenants and look for companies with the financial strength and
cash flow to service debt payments.
Consistently throughout all market conditions:
This allows the strategy to operate outside of irrational decision-making.
Opportunistically throughout the largest possible universe of potential investments:
This allows for consideration of the largest set of opportunities and investment in the best ideas generated by the strategy without external constraints.
Being able to apply the same strategy throughout the investment universe can be a key driver of performance:
Allows for the best ideas to be included in the portfolio.
Allows for avoidance of potentially inferior stock picks made to stay within portfolio constraints.
We believe taking high-conviction positions in our best ideas provides increased potential for excess returns when compared to a more diluted portfolio.
Research shows that a relatively small number of stocks (20-25) provide the majority of a portfolio's diversification.
We believe adding more stocks to a portfolio dilutes the best ideas and reduces potential for outperformance.
Assumes stock standard deviation of 45% and inter-stock correlation of 0.33. Based on Evans, J.L., and S.H. Archer (1968), Diversification and the reduction of dispersion: an empirical analysis, Journal of Finance, 23, 761-767.
A loss of confidence is shown by management or sell-side analysts no longer view the stock as having an attractive valuation.
A stock fails to meet more than one of the other investment criteria.