PORTFOLIO CONSTRUCTIONSecurities are selected from a proprietary “buy list” generated from a universe of over 1000 companies. Various quantitative and qualitative screens are used in our research process to evaluate operating and financial data and to distill a large universe into a working “research list” for potential investment consideration. A more rigorous analytical process is employed prior to placement of any security on our “buy list.”
Fundamental, bottom-up analysis targets companies that have the potential to achieve superior investment returns. We evaluate product/service uniqueness, relative industry standing, potential demand factors, inherent cyclicality, pricing power and potential catalysts that influence or could dramatically change operating or financial conditions within the company. Critical financial analysis focuses on operating cash flow, balance sheet quality, peer-relative profitability measures, and the ability of an enterprise to self-finance its growth through capital reinvestment. We are particularly attracted to companies that have little or no debt and a high rate of return on capital employed. In addition, management’s philosophy toward improving shareholder value over the long term and consistently maintaining effective communication with shareholders and the investment community are important components of our analysis. Customized separate accounts typically contain approximately 40 securities, diversified by country and industry. Client-specific risk tolerance considerations will often determine the number of securities held in a portfolio, country exposure and the market capitalization of the selections. All portfolio securities managed by Schroeder Capital Management are monitored daily. Schroeder Capital Management’s sell discipline normally includes the following three primary considerations: 1) selling when a security achieves its price objective; 2) selling when fundamentals change or deteriorate; and 3) selling when a more attractive investment opportunity is available from our buy list. Any portfolio security that experiences a decline in excess of 15% becomes a candidate for further investment consideration or removal from the portfolio depending on fundamental developments. |
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