Step 1 Macro Assessment
Our research is top-down, which means we focus on all industries and sectors and look to emphasize the ones that benefit from the current economic environment. We will have representation in most sectors that make up the universe of the economy and the stock market. Macroeconomic data and specific industry data are monitored to determine optimal sector exposure.
 

Step 2 Fundamental Analysis
The heart of Arcataur's fundamental equity analysis focuses on the competitive position of the company within its industry. We search for companies that have demonstrated franchise value. This might arise from a technological edge relative to competitors, better management, high barriers to competition or products with very few substitutes. This research focuses on the leaders or emerging leaders in these industries to lever the portfolio for out-performance versus broad market benchmarks. Strong market share, strong financial position, unique products/services, low cost operations, significant free cash flow and appropriate stock valuations are critical variables we look for in our companies.

 

Step 3 Portfolio Construction
Based upon the ten major sectors, portfolio construction starts with considering each for overall positioning versus a broad market exposure. Generally, there will be exposure in most sectors, but an overweight, market weight or underweight will be established. Industry analysis determines the best exposure to achieve sector weight. The diverse approach is maintained by not allowing any sector to be more than 2.5 times overweighted.

 

We build our portfolios utilizing the "55/15" principle. On average, we will hold 55 stocks (45 to 65); however, the largest 15 could account for as much as 45% of the portfolio's market value. Moving stocks in and out of that top 15 list accounts for a majority of trading within the existing list of companies. Key investment factors are monitored closely for each company owned and re-evaluated constantly to optimize the portfolio structure. Performance of the large capitalization portfolio is augmented by sector/industry selection and specific stock selection to fulfill the top-down approach.