Decision-Making Process
Investment Universe
We begin with every stock that trades on a major U.S. exchange, about 6,000 names. After screening, we end up with an investment universe of 2,000 or so companies that are seasoned (at least three years of operating history), suitable (no bankruptcies, ADRs, gold stocks, or funds), and liquid (minimum of $700,000 of average daily trading volume). Our strategies draw on all or parts of this universe.
Peer-Group Classification
We divide our universe into 13 sectors and 34 industries that reflect statistical and fundamental economic relationships among stocks. Our research shows multi-factor valuation to be most productive when relative value is assessed on a peer-group basis.
| Sectors | Industries |
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Capital goods Consumer discretionary Consumer durables Consumer staples Energy Financials Healthcare Materials Services Technology Telecommunications Transportation Utilities |
aerospace, construction, producer goods apparel, leisure & restaurants, media, retail household durables, motor vehicles food, household & cosmetics, tobacco exploration & production, refining & transport banks, insurance, miscellaneous finance, real estate biotech, equipment, pharmaceuticals, providers chemicals, metals & mining, paper & forest products business services comm equip, electronics, hardware, semiconductors, software telecommunications transportation utilities |
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Note: Our 13 sectors differ from the 10 GICS sectors by our carve-out of capital goods, services, transportation, and consumer durables from GICS’ industrials and consumer discretionary sectors. |
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In addition to aiding security analysis, peer-group classification also contributes to portfolio diversification. Indeed, peer-group valuation and diversification constitute important components of our process.