We believe that over the long term, market prices gravitate to intrinsic value, but in the short term, there can be significant differences between price and value.
- We buy companies trading at a discount to our estimate of intrinsic value with a margin of safety
- We favor companies focused on increasing intrinsic value
- We avoid companies with weak balance sheets and weak business models
Benchmark: Russell 1000 Value Index
The Fundamental Value investment process begins with idea generation. A quantitative ranking model focuses on companies that score in the top 40 percent of the stock universe. In the fundamental analysis stage, our risk analysis looks at balance sheet risk and business risk, where we seek to avoid companies with weak balance sheets and weak business models. Our valuation analysis uses a discounted cash flow methodology and involves the analyzing of key drivers of value – revenue growth, margins, asset turns, competitive advantage period, and discount rate. Finally, the Large Cap Value portfolio of 40-60 stocks is constructed employing certain risk constraints: limiting sector weights to +/-10% from index weights, a maximum position size of 5%, and a maximum cash position of 5%.