Mount Vernon Associates applies a top-down approach to equity management. In our experience, we have seen that the future stage within an economic cycle is the determining factor causing capital to shift from one investment sector to another. As a result, we devote a significant amount of effort to analyzing economic data to ensure an accurate forecast of future economic conditions.
Once we as a team reach a consensus on which stage of the economic cycle is approaching, we apply fundamental, qualitative and quantitative equity analysis in order to determine which industries are most likely to benefit, followed by which companies are most likely to succeed. Our process also provides a price level at which a stock may become overvalued, thus indicating the optimal timing for a sell decision.
By applying these research disciplines to the targeted sectors, equity portfolios emerge with the following general characteristics relative to the S&P 500 Index:
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Price-to-earnings ratio less than the index -
Expected earnings growth rate greater than the index -
Return on equity greater than the index -
Price-to-book value ratio less than the index -
Dividend yield greater than the index
Conversely, these criteria also serve as the basis of our sell discipline, as those securities with opposing metrics become candidates for exiting client portfolios.
We believe this combination of top-down economic analysis and bottom-up value-oriented security research will provide our clients with attractive long term returns with reduced risk. Naturally, each client has specific needs and goals which take form in their portfolios through asset allocation, income targets, tax considerations, and other investment constraints.
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