Philosophy

Across all of our investment strategies, we believe a portfolio well-diversified across regions and sectors helps to manage risk and may provide above average returns over time. Click on the links below to learn more about our three risk controlled investment strategies and the principles that have made each of them successful.

Active Equity Approach

In our active international portfolio, we believe foreign stocks with positive earnings characteristics purchased at reasonable valuations provide above average returns over time, diversification for U.S. investors and are an important source of investment returns. We buy stocks that we believe have the best balance of attractive attributes — primarily those selling at below average valuation, but also experiencing above average earnings growth. We believe this balance of growth and value will enable us to outperform in all types of market environments.

Key principles of our approaches:

• Focus on Earnings Growth and Relative Valuation - In regions and sectors where companies have similar valuations, our process seeks those companies with the highest earnings growth. In areas where earnings growth is similar, the process seeks the companies with the best relative valuation.
• Region Risk-Adjusted Portfolios - We build diversified portfolios of what we believe are the strongest companies within each region, and have region allocations that are similar to the benchmarks. Since currency has often been a major component of total return, this approach is designed to diversify the portfolio away from short term currency fluctuations which are difficult to predict.
• Rigorous Sell Discipline - The Sell decision is the most important investment decision and is the initial discussion of the weekly team meeting. Our studies indicate that stocks that have met one "sell" characteristic exhibit poor relative performance over the near-term. We strive to maintain a portfolio of stocks that have the best combination of earnings growth and fundamental characteristics. The consistent application of our sell discipline is an integral part of the success of the overall investment process.

Passive Equity Approach

We manage our international passive portfolio to the Morgan Stanley Europe Australasia and Far East (the EAFE) GDP-weighted Index. We believe market-cap-weighted indexing may overweight or underweight certain markets. A GDP-weighted index has historically produced less volatility and equal returns relative to a market-capitalization index. Country allocations in a market-capitalization index have historically been more volatile than in a GDP-weighted index.

Our preference for a GDP-weighted index is based on several observations:

• The relative stock market capitalization of a particular country can become greater than its economic output when price-to-earnings multiples are much higher in one market compared to another. The result is a systematic overweighting or underweighting of the country. We saw this with Japan's high weight in the market-capitalization-weighted MSCI EAFE in the 1980's. 
• Some countries have large economies as measured in GDP but relatively thin public stock markets. If a large portion of a country's equities are privately held, its stock market capitalization is much smaller than its relative economic production. We see this for example in Germany. It is an issue that has recently by addressed by MSCI in its index methodology.
• Market capitalization weights result in greater instability, turnover, and expenses. Market movements can result in more frequent rebalancing in a portfolio benchmarked to a capitalization-weighted index, which can prove to be expensive in the long run.

We manage our domestic passive portfolio to the S&P 500 Index.

Quantitative Equity Approach

We believe that certain market and financial characteristics of firms consistently lead to above average performance. Our goal is to enhance those characteristics that lead to outperformance while minimizing biases of subjective investment management — or human error — which can potentially confound this important goal.

We believe that stock selection based on quantitative models offers the following benefits:

• Objective and Focused — avoids human bias and allows the process to objectively focus on those characteristics with a proven ability to differentiate winners from losers 
• Group Dependent — allows for the efficient comparison of a large number of candidates within relevant groups 
• Multivariate — allows for the simultaneous evaluation of multiple relationships