Concord Focused Growth

Investment Philosophy Concord believes that in an era of increasing market efficiency, large differences still remain between companies’ true earnings potential and investor expectations for growth.  This results from the potential for emerging product trends at the industry or company level to be seriously underestimated by both analysts and investors.  The ultimate upward revision in expectations for earnings is what drives stock price performance.  Our process revolves entirely around identifying companies where expectations are soon to be rising or haven’t yet risen enough. We employ a consistent, disciplined bottom-up approach to our study of a company and its competitors.  More importantly, we feel it is critical to embrace the perspective of business owner, not passive investor.  This forces us to thoroughly understand the drivers of product demand, and model a vision for the future that exposes the gaps between growth and expectations.  Investment Process We begin with a screen of our investable universe, including among other factors a market cap range of $10 billion and higher.  The primary objective is to find companies in various phases of growth.  The investment team then decides which names will undergo a deep qualitative review.  Our qualitative work aims to evaluate the sustainability and profile of the current phase of growth the company is experiencing.  Highest emphasis is placed on industry dynamics and the company’s strategy, products and competitive position.  The process also involves but is not limited to a study of the company’s management and financial health. The process is directed by the Chief Investment Officer, who is supported by two analysts.  This team meets formally twice weekly, where perspectives for decisions (PFDs) are shaped via presentation and discussion.  We have access to street research which we combine with other internal and external sources to build our PFDs.  A potential buy list develops, with some names purchased immediately and others placed on a watch list for further tracking of fundamentals or stock price. Our sell discipline involves all of the same aspects of our purchase criteria.  Positions are sold when fundamentals show signs of peaking or changing direction, or if a stock’s valuation reveals a situation where expectations are now running ahead of its true earnings potential.  We quantitatively screen the existing portfolio to force the team to examine more closely the names which may be candidates for sale. Our process emphasizes risk management on the front-end of portfolio construction.  In addition to rules designed to prevent us from owning broken growth companies, we maintain specified limits on sector weights, position size and portfolio beta.  On the back-end, we further protect the portfolio with a disciplined sell stop system.  The aim is to eliminate truly excessive losses in any single holding without meaningfully increasing portfolio turnover.   Portfolio Construction The primary driver of portfolio construction is our growth stock selection process.  However, the portfolio is also assembled with regard to benchmark weightings of sectors and industries.  Our objective is to run a diversified portfolio and not allow our bottom-up work to dramatically overweight a particular sector.  The portfolio generally holds 35-40 positions, with cash kept at a modest level.  We do not attempt to time markets.  Our typical holding period is 1-3 years, but may be adjusted based on company fundamentals.  Turnover has historically remained below 30%.  Attribution software allows us to manage relative performance daily.  Composite returns are also calculated daily.