Domestic equity markets continued their upward climb during the first quarter of 2017, even as political risks intensified both here and abroad. From November 9th to the end of March, the S&P 500 appreciated more than 11% despite a more hawkish Federal Reserve, missteps by the new administration in Washington, and continued nationalistic and populist fervor across much of the world.
Solaris Asset Management is a highly resourced, domestic equity investment specialist whose primary goal is to deliver superior risk-adjusted returns using the highest ethical standards. Our firm draws from the considerable experience of its staff, which is organized along functional lines. Our investment team is composed of Chief Investment Officer Tim Ghriskey and a group of sector managers, fundamental and quantitative analysts, traders and risk managers. The investment function is supported by experienced operations, administration, legal, compliance, systems and client service personnel. This significant depth of intellect, expertise and manpower provides the infrastructure to support ongoing investment excellence even in the face of client and asset growth. Invested alongside our clients, we will limit our growth when we believe we are approaching a size likely to inhibit future performance.
Solaris believes that securities representing the greatest opportunity for appreciation are those exhibiting the most attractive future growth potential relative to current valuation. Therefore, within prudent risk/diversification guidelines, we are agnostic as to economic sector or company size. Our approach leads us to tilt a portfolio's sector and market cap exposure based upon changes in corporate, economic and financial market trends. Beyond seizing opportunities, a primary tenet of our philosophy is to protect portfolio principal. Our risk management techniques include an eight-step sell discipline. It is our view that thoughtful security sales are an indication of risk management vigilance. Changes in valuation or growth prospects are inevitable over time and require action. We are particularly attentive to avoiding losses of significance. In taxable portfolios, we are mindful to offset or delay gains in order to reduce the tax burdens, but we never allow tax sensitivity to dominate the investment decision.
The Solaris research-intensive approach to security selection focuses on company fundamentals. Our universe of investments includes over 1,000 companies that have an acceptable level of trading liquidity. These companies are subjected to our proprietary multi-factor computer model, which assists our sector managers and analysts in identifying securities for further research. We focus on some 400 companies that may have business issues which limit the realization of their growth potential. The securities of these companies represent unrealized value in the financial markets. We then identify those companies where we believe positive change is most likely to occur—typically about a hundred companies at any given time. We look to understand core fundamentals. We seek financial discipline, strong and improving management, and commitment to positive change. We meet with corporate management, attend conferences, utilize Wall Street analysts, interview industry experts, read trade publications, search the Internet, and closely scrutinize company fundamentals, filings and reports. This work culminates in an assessment of corporate earnings and cash flow forecasts, and ultimately in a recommendation to invest. Our CIO makes the final investment decision.
Solaris portfolios are constructed to offset the potential for inadvertent risk associated with a flexible stock selection approach. Portfolios generally have 35 to 50 securities, which are typically equal weighted. A position may be held at one-half or two times the normal weight but only for a short period of time and for pre-determined reasons. In order to achieve an appropriate level of diversification, at least seven out of ten economic sectors must be represented in the portfolio and no single sector can represent more than 35 percent of the portfolio. While the method of valuation can differ by sector, industry or security, our portfolios generally exhibit characteristics consistent with our aim to find growth at a discount: a valuation-to-growth ratio below that of the market and average forward earnings growth competitive with the market.
TIMOTHY M. GHRISKEY
Co-founder, The Solaris Group;
oversees Solaris Asset Management.
Formerly Chief Investment Officer of Ghriskey Capital Partners; Senior Vice-President, Senior Portfolio Manager and Head of Value Equities at The Dreyfus Corporation as well as a member of the firm's management committee. Associate Managing Director and Portfolio Manager of Loomis, Sayles & Company. Regularly appears on CNBC, Bloomberg, CNN, ABC, and Fox, and is frequently quoted in the Wall Street Journal, New York Times, Barron's and many other publications. He has been ranked by Barron's as one of the nation's top ten fund managers.
"Sensitivity to price, a critical eye on fundamentals and a sector-specific, proprietary intelligence system are the core of our disciplined process."