We have developed a disciplined process that relies on quantitative and fundamental analysis to help us identify what we believe to be the most attractive opportunities. With this approach we may be absent sectors if we are unable to identify opportunities.
Quantitative & Fundamental Investment Process
Click the steps below for more information.
Identify
Rank the investment universe to generate a list of stocks that are attractive on a relative basis within each sector.
SCP utilizes a report appraising various quantitative factors that provides a ranked list of companies within each sector. Portfolio Managers use the ranking system to narrow the field of candidates to provide a consistent set of metrics to analyze how the companies rank over time.
Components of Superfactors include, but are not limited to:
Valuation
- Price to Free Cash Flow
- Price to Earnings
- Price to Book
- Price to Sales
Quality
- Economic Returns
- Balance Sheet Strength
- Capital Deployment & Financing
- Earnings Quality
Market Reaction
- Estimate Revisions
- Relative Strength
- Stock Price Trend
- Liquidity
Analyze
Fundamental research primarily focuses on three main tenets
Our investment team conducts fundamental analysis to evaluate each company’s valuation, financial strength and management behaviors. We seek to identify favorable financial strength and management behaviors as measurements of quality.
Valuation
- Scenario-Based Analysis
- Margin of Safety
- Relative and Absolute Valuation
Financial Strength
- Free Cash Flow
- Economic Returns
- Balance Sheet Strength
- Business Sustainability
Management Behavior
- Capital Allocation
- Share Repurchases
- Dividend Policy
- M&A Activity
- Stable Accounting Practices
Build
Use price targets and fundamental data to construct and manage concentrated portfolios
Probability-Weighted Price Targets
- Guides entry, exit and position sizing
- Review investment thesis and probability-weighted price targets when material financial information is received
Sell Considerations
- Deterioration in model rank or company fundamentals
- Price target
- A more attractive investment opportunity exists
- Appearance of multiple Risk Flags
- Misjudgment
General Guidelines for Portfolio Construction
- Build concentrated positions in companies, industries, and sectors that are fundamentally and quantitatively attractive
- Investment with a long-term time horizon
- We do not constrain the portfolio to any systematic risk factors
- Our bottom-up process could lead to an absence of some sectors in the portfolio