Diversified Mid Cap Dedicated Value
At a Glance
- Primary Benchmark: Russell Mid Cap® Value Index
- Universe: Mid-capitalization U.S. common stocks
- We purchase stocks with a low valuation based on either P/E or P/B that pass through our quantitative and fundamental deselection processes
- Our portfolios generally purchase all holdings on a capitalization-weighted basis
- Cash is residual of the investment process, and we manage portfolios with the goal of remaining fully invested at all times
Objective
We seek to outperform the Russell Mid Cap® Value Index by investing in undervalued mid-cap stocks, as identified by a low price-to-earnings (P/E) or price-to-book (P/B) ratio.
Investment Process Summary
We manage the portfolios with a disciplined combination of quantitative and fundamental investment styles. Our investment strategy employs a deselection approach with the goal of identifying and avoiding undervalued stocks that we believe will have difficulty outperforming the benchmark. We utilize a team-oriented process with experienced investment managers.
Investable Universe
Within the universe of U.S. equities, we identify stocks with:
- Market capitalizations between the 200th and 1,000th largest U.S. stocks
- P/E or P/B ratios among the lowest 20% in this universe
Deselection Process
From the resulting 200-275 mid-cap value companies, we quantitatively eliminate stocks with:
- Weak stock price momentum, as these stocks often continue to underperform
- High relative share issuance, which often precedes weaker stock returns
- Adjusting reported earnings and book values to purchase only genuinely undervalued stocks;
- Eliminating stocks with significant pre-announced earnings deterioration; and
- Excluding stocks with severe fundamental decline or substantial financial, legal, or product risks.
Portfolio Management
The portfolio holds approximately 125-225 stocks to diversify risk and enhance liquidity. Within the limits of trading liquidity, we initially weight each stock’s position proportional to its market capitalization. Industry and sector weights are the direct result of our bottom-up investment process.
Typically, we sell a stock when: its P/E and P/B ratios both no longer are undervalued, its market cap no longer qualifies as mid cap, its price momentum lags the market sufficiently to trigger our stop loss control, a substantial number of new shares are issued, or fundamentals deteriorate significantly.
Typically, we sell a stock when: its P/E and P/B ratios both no longer are undervalued, its market cap no longer qualifies as mid cap, its price momentum lags the market sufficiently to trigger our stop loss control, a substantial number of new shares are issued, or fundamentals deteriorate significantly.