Pennsylvania Trust

Summary

The Growth strategy is best suited for clients who seek long-term capital appreciation as the primary component of portfolio total return, with income generation as a secondary consideration. The strategy aims to deliver superior returns by focusing on companies that have a proven record of growing their revenues and earnings faster than the overall S&P 500.

Philosophy
Investment Selection
Portfolio Construction
Sell Discipline

Philosophy

  • It is our belief that the best way to grow wealth, over time, is to own the common stock of high quality growth companies.
  • Underlying this philosophy is the premise that stock price will follow earnings growth, all else being equal.
  • Our primary investment objective therefore is to construct a well-diversified portfolio of high quality common stocks selected for long-term earnings growth, driven by strong revenue growth.
  • Ever mindful of the goal of preserving principal, we endeavor not to overpay for future growth by using various valuation metrics that help us buy growth companies at a reasonable price.

Investment Selection

  • The Growth strategy invests in the common stock of mid cap, large cap, and mega cap companies, both domestic and foreign, that we believe offer compelling growth attributes along with a reasonable valuation.
  • We combine quantitative, fundamental and technical analysis when searching for a company to include in our portfolio.
    • Quantitative analysis: We use a proprietary screen to review publicly traded companies with a market capitalization over $3.0 billion to identify those select companies that consistently deliver superior financial results and that trade at a reasonable price.
    • Fundamental analysis: We review those stocks identified by our quantitative screening process, and will then undertake fundamental research on those stocks being considered for addition to the portfolio.
    • Technical analysis: As a last step in the selection process, we will use technical analysis to identify attractive entry points. If for example, a stock has already risen in price, and is extended, we may wait for a better opportunity to buy the stock. Similarly, if a stock that we like is in a downtrend, we will wait to buy it until it resumes an uptrend.
  • Those relatively few stocks that pass all three levels of our analysis are then considered for inclusion in the Growth portfolio.
  • As we are looking to buy only high quality growth stocks trading at a reasonable valuation, we typically avoid companies that, among other things:
    • Exhibit below average earnings growth, or derive earnings growth from cost cutting rather than revenue growth;
    • Are heavily leveraged or in financial distress;
    • Have a high valuation relative to its earnings and/or earnings growth rate.

Portfolio Construction

  • Our investment approach stresses the benefits of owning high quality growth stocks that are diversified by industry group and economic sector. While emphasizing the traditional growth sectors such as technology and healthcare, we usually will have at least one stock in all 10 of the economic sectors recognized by the S&P 500.
  • We carefully monitor our sector weightings, and will overweight or underweight a particular sector based on its relative attractiveness. However, for risk control purposes, we maintain those sector weightings to within a +/- 50% of the S&P 500 weightings.
  • We do not maintain a concentrated portfolio, believing instead in the value of diversification. As such, our top 10 holdings typically will represent about 35% or less of the portfolio as a whole.
  • The model generally is fully invested with a cash position limited to 5% or less. (Cash levels in actual client accounts, of course, may vary from the model.)

Sell Discipline

  • We will reduce or sell entirely a stock in the Model Portfolio when:
    • The stock has done so well that it has become outsized relative to the portfolio;
    • Due to price appreciation, its valuation becomes higher than we are comfortable with.
  • Conversely, we will reduce or sell a stock in the Model Portfolio when:
    • Technical indicators turn negative;
    • Earnings momentum significantly slows;
    • Our original basis for investment has been undermined;
    • A superior investment alternative become available.