ChartMark's investment philosophy is to seek out and acquire core equity holdings in publicly traded companies believed to have superior performance potential relative to their peers and the broad market over a three to five year market cycle. The portfolio
will generally contain 20 to 30 securities diversified across various sectors and market capitalizations. Our investment selection process combines aspects of value and growth investing by incorporating top-down, bottom-up and technical research into our analysis.
Our process is described in detail below.
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Step 1 - Company Fundamental Analysis
Our fundamental analysis is a three-fold screening process in which we run a series of proprietary screens including financial, business, and management tests to identify potential companies to be selected in our portfolio.
A. Financial - we screen for revenue growth rates, cash flow growth rates, return on equity, return on invested capital, profit margins, leverage ratios and market capitalization in an attempt to find companies with superior financial performance.
B. Business performance - once we find companies with solid financial performance, we then look for names with leading market share in industries with strong cash flow and profitability growth rates.
C. Management - to complete our fundamental analysis, we further screen our potential candidates by scrutinizing senior management. We look for ambitious leadership with a strong track record of creating shareholder value. We believe a pre-requisite
for strong company performance is visionary leadership whose compensation structure reflects that of company performance.
Step 2 - Economic and Financial Market Analysis
In addition to company specific research we also conduct economic and financial market research to gain a "pulse" for the markets. We examine the fundamentals for the overall market in an attempt to determine which sectors, market capitalizations
and investment styles exhibit the potential for future superior returns. We seek to over-weight those areas with favorable fundamentals while underweighting and/or avoiding areas with poor fundamentals or valuations.
Step 3 - Procurement
Once we have identified companies meeting our screening criteria, and have determined our target weighting, we further trim our list by conducting a valuation analysis that compares the company to its historical valuation range and to its peers.
We use various valuation criteria depending on the industry. Based on our findings, each company is assigned parameters for acquisition. We then utilize technical and money flow analysis to buy companies at favorable levels in the range.
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Step 4 - Sell discipline
By definition our process lends itself to low portfolio turnover. However, we constantly monitor our holdings to ensure they continue to meet the criteria for which they were acquired. One or more of the following events may cause us to sell or
reduce our positions.
A. Change in key fundamentals included in our original analysis.
B. Negative announcement rendering part or all of our analysis irrelevant.
C. The stock price exceeds our valuation parameters.
D. The stock experiences a technical breakdown.
E. The company no longer compares favorably to others in our target universe.
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