|
Renaissance Investment Management’s ("Renaissance") universe for the large cap growth strategy consists of the 1,000 largest companies in the U.S. This universe is initially screened for those companies demonstrating above-average profitability and below-average levels of debt.
Typically, this leads to a smaller universe of about 350 to 400 companies, which are then subjected to further analysis. Specifically, these companies are scored and ranked based on a series of quantifiable factors that Renaissance believes are important in identifying good investment opportunities. These factors fall into three broad categories: high growth and momentum, rising earnings estimates and low valuations.
The stocks with the highest rankings (top quintile) are considered eligible for inclusion in the portfolio and are subjected to traditional bottom up fundamental research analysis. Ultimately, the 50 best investment opportunities derived from this fundamental research are included in client portfolios.
Ideal Investment
The ideal company exhibits many of the following traits:
- Solid, high quality growth companies
- Typically sells at reasonable valuation levels
- Experiencing positive changes in earnings expectations
- Good business momentum and accelerating earnings growth
- Supported by above-average corporate profitability
- Proven record of profitability
- Strong balance sheet
Portfolio Construction
Portfolio management:
- Quantitatively research the 1,000 largest companies in the U.S.
- Each stock is screened for above average profitability and below average level of debt
- Resulting 400-500 stocks are scored based on growth and momentum factors, earnings expectation factors and valuation factors
- Conduct traditional fundamental research on the 80-100 highest ranked (top 20%) stocks to ensure companies exhibit the desired attributes. Each company is analyzed based on:
- Reviews of annual reports and news stories about the company
- Reading research reports that are issued by analysts
- Talking to management
- Gaining an understanding of how the company has generated its growth historically and what will drive growth going forward.
Sell Discipline
The investment team will make a sell decision when:
- A security falls below the second quintile (below 40%) on the basis of their scoring and ranking process
- A security has disappointing earnings relative to their expectations
Investment Process Chart
|
|
