Fundamental Equity

Strategies:

Investment Objective:

To generate a total return, net of investment management, transaction and capital gain tax costs, in excess of the relevant Russell benchmark over rolling three to five year periods.

Investment Philosophy:

• We believe that stock prices follow earnings, both cyclically and secularly.
• We believe that companies that generate superior secular growth garner a disproportionate share of the market’s long-term wealth creation.
• In order to maximize after-tax returns, we attempt to minimize the realization of gains by limiting our net turnover to less than 20% annually and by actively harvesting losses to minimize net gains. Our average investment holding period approximates five years.
• As long-term oriented, low turnover investors, we seek companies that generate superior secular growth rates and that have a high level of earnings growth stability, avoiding stocks that have less attractive secular and more cyclical growth rates in nature.
• We look for companies that have attractive valuations relative to their growth prospects when initiating positions. Thereafter, we focus on the ability to sustain superior fundamental growth rates in ascertaining whether to maintain a position.

Investment Process:

Disciplined Screening

• U.S. equity securities that are within the sector capitalization ranges of the Russell 1000 and Russell 800 benchmarks.
• Companies with superior secular growth prospects relative to the Russell 1000 & Russell 800 benchmark universes.
• Companies with earnings growth stability greater than their sector median in the Russell 1000 & Russell 800 benchmark universes.

Fundamental Analysis

• Comprehensive company and industry fundamental analyses are performed on our focus universe, seeking companies with the following characteristics:
• Strong, sustainable earnings, cash flow and revenue growth prospects.
• Industry leadership with a competitive advantage.
• High levels of profitability, free cash flow, and earnings quality.
• Strong management teams.
• Understandable and observable fundamental dynamics.
• Limited exposure to cyclical earnings.

Stock Selection

• Utilize multiple valuation models to determine attractiveness of stocks.
• Portfolios consist of 50-70 positions, each with a minimum weight of 1%.
• Portfolio holdings are diversified across numerous economic sectors.

Risk Management

• Portfolios contain 50-70 positions, diversified across numerous economic sectors.
• Portfolio weight of individual holdings are limited to a maximum of 5%. Positions are trimmed when they exceed this weight limit.

Sell Discipline

• Holdings are sold when growth prospects deteriorate or when significantly over-valued.
• Losses on individual positions are limited to 20% from purchase cost. Losses are actively harvested to minimize taxable gains and to limit losses from unsuccessful investments.