About Us / One Process
One Process
Our investment process is disciplined, well defined, and repeatable. We focus on a longer-term time horizon to take advantage of short-term market inefficiencies and volatility, investing with conviction in the most attractive long-term growth opportunities our investment team identifies. SGA portfolios invest in a highly select group of predictable, sustainable growth businesses that are on our Qualified Company List (QCL) of roughly 100 companies, which have been thoroughly vetted by our investment team and deemed worthy of client capital. Our goal is to translate more predictable and sustainable earnings growth purchased at attractive cash flow-based valuations into superior long-term client returns.
Company Identification
Company Selection
Company Identification
Idea Formation
Analysts search for new investment ideas through the use of proprietary screens, conferences, and their research on other businesses; SGA’s Investment Committee reviews these ideas frequently, vetting candidates based on business quality (pricing power, recurring revenue streams, long runways of growth, financial strength, and adept management) and long-term growth potential, assigning analyst coverage to the strongest prospects.
Business Qualification
A primary and a back-up analyst are assigned to each idea that meets our stringent business quality and growth criteria. Both analysts conduct further research and due diligence on management, competitors, and other industry sources, culminating in the construction of detailed proprietary financial models.
Qualified Company List Additions
Both analysts resubmit the company and investment thesis to the Investment Committee with their detailed findings. Following Committee debate, portfolio managers further discuss the company’s merits, and three of five members of the Portfolio Management Committee must agree for the stock to be added to SGA’s QCL where it then becomes eligible for purchase in SGA portfolios.
COMPANY SELECTION
Valuation Consideration
Analysts perform continuous due diligence on all QCL businesses, comparing them based on key business quality drivers, the predictability and sustainability of their growth opportunity, and their cash flow-based valuation relative to other QCL businesses and portfolio holdings.
Portfolio Construction
A stock is purchased when it offers enhancements in key business quality criteria, future expected growth, and valuation. We limit holdings to no more than 30 in the U.S. portfolio and no more than 35 in the global, international, and emerging markets portfolios. This ensures that we own only the highest-confidence, highest-return opportunities we can identify, regardless of whether they are part of a benchmark or not. Conversely, a stock is sold when we identify fundamental deterioration in key thesis drivers, the valuation becomes stretched, or other stocks with similar business quality and growth potential become more attractively valued (i.e., “forced attrition”). Two of three portfolio managers must agree in order for a stock to be purchased, sold, trimmed, or added to a position.
RISK MANAGEMENT
Risk management is an inherent element of our investment process. We seek to control three key risk factors: 1) Business risk, by investing selectively in high-quality businesses that offer more predictable and sustainable long-term earnings growth; 2) Human risk, by assigning a primary and a backup analyst to each company, and taking a team approach to research and portfolio management; and 3) Price risk, by implementing a disciplined, proprietary cash flow-based valuation approach to all purchases and sales. Additionally, we seek to mitigate portfolio risk by setting strict limits for individual company exposure at 8% (in most portfolios), industry exposure at 25%, and sector exposure at 40%.