Rorer Mid Cap Equity Strategy

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Rorer Asset Management’s equity management process is a highly disciplined approach to stock selection and portfolio management.  Two proprietary quantitative screens are used to evaluate stocks in terms of valuation and earnings momentum.  The valuation screen stresses “relative valuation” and focuses on five financial ratios: P/E, P/B, P/CF, P/S, and dividend yield.  Each measure compares the current valuation with the company’s five-year historical norm relative to the market.  The earnings momentum model evaluates near-term First Call consensus estimate revisions and positively scores companies that are experiencing upward revisions and positive earnings surprises.  Fundamental analysis and investment strategies are the final determinants for security selection.  Strong sell disciplines are designed to realize upside price objectives, reduce portfolio volatility, and reduce specific issue risk.

Ideal Investment

The ideal security exhibits many of the following traits:

• Strong financials
• Competitive positioning
• Good management
• Sustainable future growth and earnings momentum
• Positive earnings surprises
• Attractive relative valuation

Portfolio Construction

Portfolio management:

• Performs quantitative research to screen for those stocks, which are U.S. domiciled, have at least two years of trading history, and have market capitalization between $1 and $10 billion at time of purchase
• Employs a rigorous quantitative screening process designed to filter out a list of potential purchase candidates based on two factors:
  1. Attractive Relative Valuation
  2. Earnings Momentum
• Uses a valuation methodology to identify those companies trading below their historic valuation norms relative to the market, as defined by the S&P 400
• Measures earnings momentum to identify those companies that are experiencing upward earnings estimate revisions from the analytical community and, thereby, have the best potential to provide positive earnings surprises
• Utilizes a team approach to leverage stock ideas and research to arrive at buy/ sell decisions in the portfolio

Sell Discipline

Rorer’s sell process is designed to eliminate the emotion often associated with the decision of whether or not to sell a particular stock.  It seeks to realize profits after they have been earned, or conversely, to conserve capital when circumstances dictate.

The investment team will make a sell decision when:

• A security reaches the predetermined price at which the additional risk of keeping it exceeds the prospect of greater price appreciation
• A security reaches 6% of the portfolio’s value because of capital appreciation, in which case the security will be either sold completely or scaled back
• A security, from the firms’ average price, under performs the S&P 400 by a 20% on a relative basis
• A company displays  deteriorating fundamentals
• A security’s market capitalization exceeds the capitalization of the largest company in the S&P 400 by more than two times

Investment Process Chart