There is a real disconnect between needing stable portfolio growth and income for decades, and investment returns that are being measured daily or quarterly. Over longer periods, inflation can seriously erode the value of assets, your financial needs can change and even an investment horizon of five years can be too shortsighted.
We maintain a conservative approach that focuses on long-term investments in well-managed growth companies, as well as low turnover with an investment horizon of 3-5 years or longer.
Each Hotchkiss portfolio contains 25-35 equities representing approximately 10 industries, and is allocated among equities, bonds and cash as appropriate to the individual client’s
investment profile.
Following a top-down industry analysis, our investment team focuses on selecting issues within those industries we find attractive. At this point we identify leaders in each of the industries. Here we are comparing management quality and looking for market share dominance or franchises with sustainable growth. Our research focuses on the drivers of a company's growth and profitability. We also prefer companies with a high return on equity and clear financial strength. This shortens the list of contenders considerably.
Next we address the stocks and their relative valuations. We use valuation models, including the dividend discount model, and compare pertinent financial ratios. In the end, our discipline emphasizes investing in profitable businesses at prices that are justified by the growth potential.
Having identified a stable of companies across diversified industries, we work with the client to construct an appropriate portfolio. We will create a portfolio responsive to the client's objectives and constraints that contains between 25 - 35 equities, representing approximately 10 industries. If appropriate, the portfolio will have an allocation among equities, bonds and cash that reflects the client's individual requirements, such as a need for income or simply an aversion
to risk.
Although Hotchkiss Associate's core investment approach emphasizes a growth stock strategy, the firm recognizes that some clients need, or prefer, greater investment diversification. For those clients, the firm offers the Hotchkiss Asset Allocation portfolio.
Asset
Allocation
Portfolio
Hotchkiss Associates recognizes that some clients need, or prefer, greater investment diversification. For those clients, we have created a portfolio consisting of a diversified group of attractive asset classes. Allocations to various classes reflect our current macroeconomic analysis. Our growth stock strategy makes up the core of the portfolio, and is complemented by positions in uncorrelated asset classes like international equities, bonds and commodities. We use exchange traded index funds whenever practicable, as we believe they are the most cost-effective way for our clients to achieve broad investment diversification.
While our investment philosophy is to identify attractive long-term investments, environments can change dramatically in the short-term. As a result we have identified four criteria in which a material change would cause us to sell an investment. Those are:
1) Our appraisal of the quality of the company's management
2) The market for the company's products
3) The competitive landscape
4) Negative changes in the outlook for the industry
Importantly, we are reluctant to sell a stock based simply on a rising or falling share price if the reasons for its purchase remain intact. Maintaining conviction in quality investments when they underperform can assist in producing long-term rewards. At the same time, we seek to avoid concentrated positions and are mindful of relative valuations.
