Cavanal Hill offers research-driven equity investment management strategies designed to outperform the broader market.
Philosophy
Our approach to managing equity funds beings with five underlying principles:
- A company’s earnings power and reinvestment opportunities determine the value of its stock.
- Companies participating in expanding markets have the most opportunity to increase their earnings.
- Companies gaining market share are capable of expanding margins and generating
uncommonly high returns on invested capital, which often leads to superior stock performance.
- Companies with consistent and predicatable returns are preferable to companies with volatile and unpredicatable returns.
- Not overpaying for a company’s earnings potential is critical to maximizing return and minimizing risk.
Process
Our disciplined process highlights promising stocks. Using the core principles above as a blueprint, our investment professionals embark on a disciplined, four-part investment process for building and managing equity portfolios:
Discover companies poised for above average growth
We seek companies that participate in expanding markets and are capable of gaining market share. For each of our strategies, we conduct comprehensive company and industry analyses, seeking companies with the following characteristics:
- Participation in an expanding market
- Industry leadership with a competitive advantage
- Potential for gaining market share
- Prospect for expanding margins
- Strong management teams
- Understandable and observable fundamental dynamics
Assess a company's true value
Once we complete our assessment of a company's earning potential and cash flow generation characteristics, we compare our appraisal of the company's intrinsic value with the current share price. We seek to:
- Purchase businesses at reasonable valuations to generate superior investment returns
- Avoid companies priced for perfection
Invest only when the price is right
We invest in opportunities offering the greatest current value on a risk-adjusted basis. Although we look for companies capable of growing their earnings, we are equally focused on valuation and not overpaying for growth. Any tilt toward growth or value stems from our bottom-up stock selection process, which seeks to identify companies positioned to outperform over time. Similarly, our sector over- and under-weights generally represent the results of our bottom-up stock selections.
Monitor and continually re-evaluate
We continually re-evaluate the portfolio relative to potential investments, managing sector exposure and valuation risk of our current holdings on a regular basis. In monitoring for risk, we make sure our portfolios are diversified across numerous sectors and holdings. We will consider selling a holding when:
- Its growth prospects deteriorate
- It becomes overvalued
- It loses 20% of its purchase-price value
- We identify other, more attractive opportunities