 |
The International Growth team employs a
three-step investment process that seeks to maximize potential returns
while managing overall portfolio risk. The bottom-up investment process
includes: quantitative screening, fundamental analysis, and portfolio
construction/risk management.
Screens: Narrowing the Field and Uncovering Opportunities
To identify investment candidates, the team uses an
initial screen for the following regions: Europe, Japan, Asia
excluding Japan, and emerging markets. The team uses a proprietary
modeling tool on a sector and regional basis to reduce the universe
further. The list of investment candidates is narrowed to
approximately 200 to 300 securities, which constitutes the
portfolio’s investable universe. These initial screens comprise
approximately 15 percent of the overall investment process. The
remaining 85 percent of the process is dedicated to rigorous
evaluation of the remaining candidates to arrive at the final
portfolio.
Fundamental Analysis
Once the pool of securities has been reduced to 200 to 300
securities, the team then applies its rigorous fundamental analysis.
They evaluate each company, from many different angles, to determine
its eligibility for inclusion in the portfolio. Specifically the
team evaluates:
- Strength of management team. The International Growth team meets
with the company’s management and looks for companies that are
strategically forward thinking and that have a sustainable
competitive advantage.
- Global or regional market leadership. The team looks for companies
that are leaders in their industry and/or region. Product lines are also
carefully evaluated for their potential to provide appropriate portfolio
diversification. 3
- Consistency and predictability. The team seeks companies that
can provide sustainable growth and develop new opportunities. The
team looks at growth—in revenue earnings, and margin—to uncover
these potential attributes.
For the remaining companies the team deems attractive, they develop
detailed investment rationale. The rationale outlines the candidate’s
investment case, including the stocks’ strengths and risks. The team then
meets and actively discusses each potential holding.
Final Selection: Constructing the Portfolio
The final step in the investment process is selecting the 35 to 45
companies for the portfolio. The initial portfolio weighting of a security
is typically 2.5 percent. The team attempts to keep cash to a minimum and
the amount of cash in the portfolio is generally no greater than 3 percent.
Securities are limited to a maximum individual position in the portfolio of
5 percent.
Comprehensive Risk Management
The team takes a long-term approach to investing— seeking to provide
consistent performance for clients. They use risk management techniques such
as assigning and employing collars by region and sector. They also manage
risk by striving to maintain a tracking error of between 3 percent and 6
percent relative to the MSCI EAFE Index.
Companies are sold when:
- A security no longer fits the portfolio’s investment criteria
- A substantial decline within the quantitative rankings occurs
- A more attractive opportunity is identified
If a security is identified as a possible sell candidate (for
example, if it experiences downward earnings revisions, or price
deterioration), the team reviews the stock to determine the cause of
these deteriorating fundamentals. If the investment thesis no longer
applies, a sell rationale is written based on their findings. Holdings
are also trimmed when a sector or regional allocation approaches maximum
relative weights (+/- 10 percent for regions, +/- 5 percent for sectors)
to the MSCI EAFE Index.
|
|
|
|
|
|
The strategy’s investments in foreign securities involve risks that are
in addition to the risks associated with domestic securities; therefore,
the portfolio may be subject to additional currency, political,
economic, and market risks. Equity securities are subject to the basic
stock market risk that a particular security, or securities in general,
may decrease in value. There is no guarantee that this investment
strategy will work under all market conditions, and each investor should
evaluate their ability to invest for the long term, especially during
periods of downturn in the market. A separately managed account may not
be suitable for all investors. A minimum asset level is required.
|
|
|
QUICK LINKS
