Our Large Cap Value investment process builds a stable, low turnover portfolio for each of our Large Cap Value clients, with the goal of providing attractive risk-adjusted total returns over the long term. A typical Phocas Large Cap Value portfolio consists of 50 - 80 stocks, diversified across the majority of industrial sectors.
- Phocas begins with the entire universe of U.S. public equities.
- We use decile rankings to select stocks in the top two deciles of market capitalization and screen out illiquid securities.
- For operating companies, we screen further to examine the companies in the two lowest deciles based on price-to-book, price-to-earnings, enterprise value-to-EBITDA, and price-to-sales based on historical sector price correlation. We also look for positive EBITDA or cash flow, and adjust for balance sheet risk for GIC sectors that show high historical price performance correlation. For financials and REITs, we apply proprietary industry models to eliminate unattractive equities.
- We conduct a quantitative analysis of each company, focusing on:
Balance sheets;Cash flows;Income statements; andRatio analyses.
- We conduct a qualitative analysis of each company, focusing on:
Governance;Industry analyses;Quality of company management teams;Contact with company management teams;The companies' mergers and acquisitions histories and prospects; andCatalysts for stock price appreciation.
- Next, we conduct proprietary modeling to identify the stocks that will be in the portfolio. This consists of the following analyses:
Discounted cash flow;Asset valuation;Sum-of-the-parts;Price-to-book, price-to-earnings, enterprise value-to-EBITDA, and price-to-sales ratio analyses;Relative multiples;Proprietary Phocas Financial Corporation financials model; andProprietary Phocas Financial Corporation REIT model.
- Finally, we construct diversified client portfolios:
Weighting of sectors is based on individual security valuation levels and appreciation prospects; andRepresentation generally in all important sectors.