Portfolio Construction

The number of holdings in our client portfolios typically range from 40 to 60. We believe that this number of positions is adequately diverse to mitigate risk but concentrated enough not to dilute excess returns. Each position is assigned to a proprietary category classification: compounders, discount-to value, and special situations (each of which has specifically defined weighting ranges).

Position weightings within a portfolio are determined by quantitative (IRR) and qualitative factors (qualitative Scorecard) as well as correlations. Cash percentages are not targeted but are a residual of the investment process; cash will preferably remain below 10% of the portfolio.  Sector and industry weightings are incidental to our process. 

Market cap ranges are analogous to those of the Russell 2000 index at the time of purchase. The maximum individual position size at the time of purchase is 6% of the portfolio, with an average holding size of 2%. The maximum for sector exposure is 35% of the portfolio and the maximum industry exposure is 20% of the portfolio. The portfolio is constantly monitored to achieve optimal reward/risk characteristics and to avoid excessive correlation among the holdings.