“MID CAP GROWTH”

The “Mid Cap Growth” product is an actively managed, concentrated U.S. equity strategy that seeks to identify approximately 50 of the best publicly traded companies from among Mid-Cap sized companies. The common stocks issued by these companies are selected through the use of a fundamentals based, analytical methodology driven by historic income and balance sheet data. Since the strategy seeks to identify superior companies the resulting portfolio has a strong growth bias. The selected securities are combined in an investment portfolio and equally weighted. The portfolios are rebalanced to equal weighting approximately 30 days after the end of each calendar quarter.

“Mid Cap Growth” utilizes a bottom-up, multifactor, decision-making model known as Mathematical Value Theory (MVT) which is a systematic process wherein basic value is defined and analyzed mathematically rather than subjectively. It affords a disciplined, formula-based, repeatable method for selecting from a universe of stocks to construct an investment portfolio. MVT enables one to identify subsets from a broader universe of companies where the average of the subset is superior to that of the universe.

  

The process begins by taking 27 fundamental financial ratios from reported company financial statements and comparing them within relevant time frames to (1) an ideal company, (2) other companies of the same type, (3) all other companies in the chosen index.  The companies are given a relative score from each of these comparisons based on proprietary weightings for each type of company and then ranked. Changes in company scores over time are compared and incorporated. Stock price variables are then factored into the algorithms. From this is derived a list ranking the companies in the index from best to worst.

 

As this is a bottom-up, multifactor-driven model, there is no consideration of macro-economic forecasts, traditional Wall Street research or company guidance. Qualitative judgments are introduced as the final portfolio candidates are individually reviewed for any data discrepancies or any ‘hard’ news that might change the facts of our analysis. From this comes the final ranking, whereby approximately 50 names are chosen and given equal weighting, held for one quarter and then rebalanced.  This process is repeated 30 days after the end of each calendar quarter in order to capture additional quarterly data.

 

Although this approach to stock selection and portfolio management is ‘data driven’ as described in some detail above, it is not exclusively data dependent.  Following the multi-factor model analysis, the final inspection or qualitative analysis examines any new information that is “in the market” but not in the data.  This is a key aspect of the approach.  Once the methodology has the portfolio prospects down to a manageable number, a detailed analysis of news and company announcements over the previous month is done to determine if there is information “in the market” that is not in the data.  Additionally, a close current information analysis is performed of issues that are moving up in ranking vs. those that are moving down.  

 

The methodology helps to determine what are believed to be the approximately 50 best companies from the selected Mid Cap Growth index, and they are included with equal weightings.  At the end of the quarter, some of the companies will be replaced in the portfolio with better companies and the weightings of the names whose values have appreciated will be reduced to approximately 2% along with the other companies in the portfolio.