Process


Top Down Equity Process

Our process is top down and we follow a team approach that is highly collaborative, with each individual member of the Investment Committee contributing to the success of our clients' investment objectives.

The Investment Committee, comprised of all portfolio managers, utilizes a 3- Step Process:

Top-Down Triangle
3-Step Process
  1. The first step we take in our investment process is to Assess the Economy. This step, by far, has the most influence over the makeup of our equity portfolios. Our task at this stage is to develop a coherent outlook for demand growth, inflation and profits and therefore identify long-term investment trends.
  2. We next seek to Determine Attributes for Success. This key step - in which we identify corporate characteristics that will generate growth and minimize risk – increases the probability that the stocks we select will be the leaders in accelerated growth for the next three to five years.
  3. In our third step we Define the Universe of Securities that reflect the desired economic characteristics. Here we analyze specific industry and company fundamentals, approving certain sectors for further consideration while eliminating those that carry undue risks. It is from these securities we make our selections to build each client's portfolio.

Because our investment style is designed to anticipate change, our equity portfolios do not represent the market as a whole. Our portfolios are designed not just to mimic a particular index, but rather represent the slices of the market that are positioned to benefit most from changing economic trends that will be in force over the next several years.

We believe that economic change constantly creates opportunities and changes risk, allowing performance to be optimized because of our focus on the longer-term underlying economic fundamentals. This philosophy has proven successful over several economic cycles with different characteristics, and the firm feels it will continue to perform well.


What is our Equity Style?

Stocks have been selected in sectors based upon the company's fundamental attractiveness, a measure of the company's price earnings multiple to the company's growth potential relative to the broad market's ratio. TSBJ has always conservatively estimated a company's growth potential.

Our historical benchmark since inception has been the S&P 500, an index comprised of both Large Cap Growth and Large Cap Value equities.

A predominant factor in TSBJ's performance over time is due to our ability to shift between growth and value equities. At times economic conditions may warrant a portfolio bias weighted toward growth or value, as the attractiveness of such stocks tend to move in cycles. What can be understood from our results is that the fundamental attractiveness of more rapidly growing and more slowly growing companies changes over time, and our outlook will impact the characteristics of our portfolio holdings over time.


How We Manage Risk

Our top-down approach is highly disciplined, and the record strongly suggests that it is repeatable under different economic and market conditions. It has been applied consistently by the Investment Committee since the firm was founded in 1974. Utilizing rigorous standards of investment quality, it is based on the simple concepts of common sense and risk aversion.

TSBJ's ability to provide higher return with less risk is due to our sell discipline. The Model Portfolio has historically been comprised of approximately 30-50 stocks and has had a low turnover. However, we have always maintained a strict sell discipline. Reasons that we choose to sell a stock are:

  • Change in the Economic Outlook - Occurring infrequently, large portions of the portfolio may turn over with significant changes in sectors and industries to reflect new outlook.
  • Changes in attributes - Occurring occasionally with moderate turnover in securities to reflect changes in industries that meet criteria for success.
  • Change in Relative Prices - Occurring regularly with turnover of specific positions to capture valuation opportunities.

Proper management of risk has provided our clients with greater protection in a market downturn. Our goal has been, since the founding of the firm over 35 years ago, to develop and maintain an approach that succeeds in different market environments, with a focus on participation in good markets, but also preserves capital in bad markets.

Over the last ten years, the data show that we have exceeded our benchmark of the S&P 500 Index and ranked at the top of our peer group. Most importantly, we have also ranked in the top of our peer group by protecting our client assets in falling markets.


What Makes Us Different

The differentiation of this product from others in the marketplace begins with the Top Down process Trevor Stewart Burton & Jacobsen Inc. employs. We focus on the longer-term economic fundamentals that ultimately drive markets.

Second, we define corporate characteristics for the economic environment we foresee. These characteristics allow us to identify industries that are likely to benefit from and be harmed by that environment.

No industry must be included or excluded from our portfolios, nor do we benchmark portfolio allocation relative to an index. This allows us to adjust the risk exposure of the portfolio to an appropriate level for market conditions.

Market conditions favor our equity product when long-term economic fundamentals are of greater importance and the market is investment driven rather than speculatively driven. When the market is speculatively driven our product is likely to underperform.

By adhering to this approach through periods of short-term disappointing relative performance, we have outperformed many of our competitors in the long-term with positive alpha with lower volatility than the market.

For over 35 years our investment process has provided our clients not only with positive relative performance to the S&P Index, but has done so while protecting their portfolios in down markets.