The Opportunistic Equity Strategy was started in 2020 to provide an option for investors looking for compelling mid-term risk vs. reward investments. It is meant to be a complement to investors that have money invested in large cap growth. The strategy has a value tilt and will invest in small-cap, mid-cap and large-cap stocks, both domestics and international ones. Many holdings are cyclical stocks that tend to have higher risk. There is a heavy emphasis on margin improvement and special situation stocks. The strategy targets approximately 50 holdings. It is believed there are some unique compelling valuations that over a 2 to 3 year time period are able to provide strong returns.
The strategy is designed to provide a differentiated investment approach that targets above average returns over time.
The manager is a generalist investor and believes broad knowledge of various markets can help identify some of the best investment opportunities. Half the battle to successful investing is being knowledgeable about what is available.
Screening techniques are used to identify a narrow list of potential investments. Securities are selected by researching company filings and reports, industry and analyst reports and performing various valuation approaches such as discounted cash flow analysis. Both top down and bottom up analysis are utilized for security selection. Macroeconomic research is performed daily. There is a heavy emphasis on special situation stocks and self-improvement stocks. Market valuations of securities held are monitored daily and if securities have moved beyond targeted valuation ranges, they will be sold or more will be bought.
The strategy is multi-cap value strategy although some growth stocks are held. International stocks are held and can be up to 60% of the strategy.
What type of strategy is this? A contrarian investment approach that seeks to identify equities with a compelling 2 to 3 year risk vs. reward. A number of factors determine asset allocation.
What kinds of stocks are held and how many does the strategy hold? While there is an allocation to large cap US stocks and some international stocks, the majority of the allocation is to mid and small cap domestic stocks. The strategy targets approximately 50 holdings.
How risky is the strategy? Risk is generally higher than the S&P 500 because there is a heavy small cap allocation. In addition, the strategy is allocated to many cyclically sensitive stocks that offer compelling long-term valuations albeit at the expense of greater short-term volatility.
Why does Waterfront offer the strategy? We believe it is a good complement to large cap growth investing. While earnings tend to be more sensitive to economic conditions than many large cap growth companies, valuations are often heavily discounted.
Is it a value strategy? Yes, but the allocation differs materially from small cap value indices. There is an emphasis on companies with unique valuation considerations and also companies that have prospects for expanding margins. Margin expansion is one the primary determinants of stock outperformance. How can I Invest in the Strategy? The strategy has a $150,000 minimum with a 65 basis point management fee. Funds are held at First Clearing, our custodian.
Investors should carefully consider the investment objectives, risks, charges and expenses of the strategy before investing. There is no guarantee that any investment strategy or approach will be successful or achieve any particular level of results. All investing involves risk including the possible loss of principal.
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