Chapter Four: Investment Strategy
The ACME Project: Growth Strategy
Investment Philosophy
Emphasizing long-term capital appreciation via a “value first” proposition, the Acme Growth Strategy (the Strategy) identifies companies with an attractive risk/reward proposition and multiple potential catalysts to realize growth. The philosophy incorporates an understanding of the cyclical nature of growth and value styles, accepting an allocation to the former, defined by the Strategy as “Reluctant Growth,” when growth holds an upper hand and value, therefore, is out of favor. The Strategy employs and evaluates a number of economic and market variables to determine an appropriate allocation to equities; it is anticipated that the Strategy will hold elevated levels of cash when said variables collectively indicate valuations are dear, and risks, high. Holdings will likely incorporate U.S. and international exposure, across market capitalizations, with a probable long-term bias toward the small-cap end of the spectrum. Cash is not targeted, but simply a residual of the investment process. Gold may be held, not as speculation, but as insurance against “unknown unknowns.”
The overriding philosophy places a priority on avoiding permanent impairment of capital. While benchmark agnostic in the short term, the Strategy aims to outperform its global equity benchmark, over complete market cycles, on a risk-adjusted basis. Investments are sought where the potential for significant gain is determined advantageous over the possibility and degree of loss.
The strategy will be available with or without attention paid to ESG (environmental, social, and governance) issues, as chosen by the client.
Investment Manager or Management Team
Richard “Rick” Sane brings over three decades of advisory experience to the Acme Growth Strategy. Degrees of higher learning include a B.B.A. from St. Bonaventure University and an M.B.A. from the University of Notre Dame.
Rick holds the following professional designations: Chartered Financial Analyst (CFA®), Chartered Alternative Investment Analyst (CAIA®), Certified Investment Management Analyst (CIMA®) and Certified Portfolio Manager (CPM®).
Investments & Wealth Institute™ (The Institute) is the owner of the certification marks “CIMA” and “Certified Investment Management Analyst.” Use of CIMA and/or Certified Investment Management Analyst signifies that the user has successfully completed The Institute’s initial and ongoing credentialing requirements for investment management professionals.
Ideal Client
The ideal client understands and embraces:
1. Success is earned over time. No client should consider the Strategy without a conscious commitment of capital for at least five years or a full market cycle, whichever is longer.
2. Owning a portfolio of securities that will likely look quite different from the composition of any one index.
3. A significant degree of tracking error; that is, short-term return deviations from any standard benchmark.
4. A relatively concentrated portfolio, aka “less diversified,” is an important contributor to long-term success.
5. Cash and gold can be effective risk management tools and are part and parcel of a disciplined portfolio.
6. The Strategy represents a level of risk that should be scaled appropriately to each clients' risk tolerance and objectives.
Investment Process
Prior to investing in attractive candidates for long-term capital appreciation, the Acme Growth Strategy evaluates a number of macroeconomic and market variables to determine initial and ongoing allocations to equities, with cash, and potentially gold, as residual weightings. Once this allocation has been determined, consideration is applied to determine any meaningful and trending bias favoring growth or value. Should growth be determined to be in cyclical favor, up to 20% of the portfolio may hold exposure to traditional large cap growth, U.S. or global, via exchange traded funds (ETFs). The net result of this process will provide an allocation to equities of at least 60% of the portfolio value; cash (defined as investment grade instruments maturing in less than one year) up to a 30% weight; and gold (via ETF) up to a 10% weight.
Fundamental research attempts to identify companies with multiple possible catalysts for appreciation; it is not believed wise to lean heavily on just one possibly favorable outcome. Great ideas can come from many sources. The Strategy employs a wide variety of publications, competitive analysis, and industry research for inspiration. Given a foundational belief that better opportunities are likely found in companies less-researched, it should not be surprising to any client to see a portfolio that favors smaller publicly traded concerns.
Initial position sizes will generally fall in a range of 2% to 5% of investment capital; the higher figure reflecting a greater degree of conviction. The Strategy will likely hold 30 to 40 investments, but no less than 20 under any circumstance. Concentration in any one market sector is simply a consequence of identifying attractive individual companies, and not consciously targeted in advance.
While short-term benchmark agnostic, the Strategy will pursue quality performance, net of expenses, over full market cycles, of the global equity benchmark (MSCI ACWI Net Dividends).
An ESG filter will be applied to the Strategy at the discretion of the client.
Sell Discipline
An important principle of the Acme Growth Strategy is to identify companies with long-term, above average appreciation potential: in other words, “long runways.” There may be instances, therefore, when an opportunity is identified, and investment made, where the company is considered a small capitalization name. The Strategy will allow such positions to cross market-cap boundaries (small to mid to large) should it be the beneficiary of a rapidly growing and successful concern. In most circumstances a position will not be permitted to exceed a Strategy weight of 10%, with no more than two positions to exceed a 15% weight. At each respective limit, position sizes will be reduced by at least 2% from the 10% or 15% levels.
There is no specific time period utilized to determine if an underperforming position should be sold, but any declines exceeding 20% from the time of investment will merit reevaluation of the position. Any position experiencing a 30% loss will trigger immediate disposition. For accounts subject to taxation, the Strategy may incorporate harvesting of gains and/or losses as dictated by, and if in the best interest of, the client.
*Numerical figures provided are approximations.
Client Review
Strategy reviews will be supplied on a quarterly basis, electronically and/or in hard copy format. Such reviews will include performance, net of expenses, for that quarter, year to date, and from Strategy inception for each client. Performance will be measured against the global equity benchmark (MSCI ACWI Net Dividends). Reviews will always include the annual percentage fee structure agreed to in advance of Strategy implementation. At least two reviews each calendar year will be conducted via telephone or in person, whichever is deemed most convenient to the client.
IMPORTANT DISCLOSURES
Any opinions are those of the Investment Manager(s) and their team and not necessarily those of Raymond James. Opinions are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security outside of a managed account. This should not be considered forward looking, and does not guarantee the future performance of any investment.
All investments are subject to risk, including loss. There is no assurance that any investment strategy will be successful. Asset allocation and diversification does not ensure a profit or protect against a loss. It is important to review the investment objectives, risk tolerance, tax objectives and liquidity needs before choosing an investment style or manager.
This Fact Sheet is not intended to be a client-specific suitability analysis or recommendation. Do not use this as the sole basis for investment decisions. Do not select an investment strategy based on performance alone.
The individual(s) mentioned as the Investment Manager(s) are Financial Advisors with Raymond James participating in a Raymond James fee-based advisory program. This is an investment advisory program in which the client's Financial Advisor invests the client's assets on a discretionary basis in a range of securities. Raymond James investment advisory programs may require a minimum asset level and, depending on your specific investment objectives and financial position, may not be suitable for you.
In a fee-based account, clients pay a quarterly fee, based on the level of assets in the account, for the services of a financial advisor as part of an advisory relationship. In deciding to pay a fee rather than commissions, clients should understand that the fee may be higher than a commission alternative during periods of lower trading. Advisory fees are in addition to the internal expenses charged by mutual funds and other investment company securities. To the extent that clients intend to hold these securities, the internal expenses should be included when evaluating the costs of a fee-based account. Clients should periodically re-evaluate whether the use of an asset-based fee continues to be appropriate in servicing their needs. A list of additional considerations, as well as the fee schedule, is available in the firm's Form ADV Part 2 as well as the client agreement.
ASSET CLASS RISK CONSIDERATIONS
Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly.
This strategy may contain Exchange Traded Funds (ETF) and/or Mutual Funds. Investors should carefully consider the ETF and mutual fund investment objectives, risks, charges, and expenses before investing. The prospectus contains this and other information and can be obtained from the ETF or Mutual Fund sponsor as well as from your financial advisor. The prospectus should be read carefully before investing.
ETF shareholders should be aware that the general level of stock or bond prices may decline, thus affecting the value of an exchange-traded fund. Although exchange-traded funds are designed to provide investment results that generally correspond to the price and yield performance of their respective underlying indexes, the funds may not be able to exactly replicate the performance of the indexes because of fund expenses and other factors.
Equities: Investors should be willing and able to assume the risks of equity investing. The value of a client's portfolio changes daily and can be affected by changes in interest rates, general market conditions and other political, social and economic developments, as well as specific matters relating to the companies in which the strategy has invested. Companies paying dividends can reduce or cut payouts at any time.
Fixed Income: All fixed income securities are subject to market risk and interest rate risk. If fixed income securities are sold in the secondary market before maturity, an investor may experience a gain or loss depending on the level of interest rates, market conditions and the credit quality of the issuer. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. Please note these strategies may be subject to state, local, and/or alternative minimum taxes. You should discuss any tax or legal matters with the appropriate professional.
International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
The Bloomberg U.S. Aggregate Bond Index is a measure of the investment grade, fixed-rate, taxable bond market of roughly 6,000 SEC-registered securities with intermediate maturities averaging approximately 10 years. The index includes bonds from the Treasury, Government-Related, Corporate, MBS, ABS, and CMBS sectors.
The Dow Jones U.S. Select Dividend (TR) Index measures the performance of leading dividend-yielding stocks in the U.S.. Stocks are screened for dividend quality.
Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.
The MSCI ACWI (All Country World Index) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2007 the MSCI ACWI consisted of 48 country indices comprising 23 developed and 25 emerging market country indices. The developed market country indices included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indices included are: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
