Burkenroad Small Cap Fund Process
The Burkenroad Small Cap Fund has a unique investment process that starts with a screening
process focused on small cap stocks located or doing business
in Alabama, Florida, Georgia, Louisiana, Mississippi, and Texas. Once this screen
is complete, stocks are filtered based on further quantitative analysis. Favorable
stock choices should exhibit strong probability of earnings surprise, favorable
relative stock momentum, positive estimate revision, low relative valuation metric
(P/E and P/B), and strong cash flow yield. Portfolio sector and industry weightings
are derived from the individual stock selection process, which uses both quantitative
and qualitative analysis, with heavy emphasis placed on fundamental analysis. The
fundamental analysis focuses on company specific and external environment issues
that are relevant to the stock decision. The Director of Equities and Chief Investment
Strategist have the final say on stock decisions. In addition to our own research,
the Burkenroad Small Cap Fund utilizes Tulane University’s BURKENROAD REPORTS for individual
company research. The BURKENROAD REPORTS is an educational program on investment
research in which selected students at Tulane University’s A.B. Freeman School of
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- The Fund and Horizon Advisers are NOT affiliated with Tulane University or the A.B.
Freeman School of Business. Hancock Bank licenses the name “Burkenroad” from Tulane
University. Neither Tulane University, the A.B. Freeman School of Business nor the
students, faculty and staff of Tulane University have any involvement in the investment
decisions, management or operations of the Fund.
Diversified Income Fund
Historical rates of return and yield data are analyzed using quantitative methods that maximize the total returns while attempting to minimize the total risk of the underlying assets. This provides a basis for determining the percentage of exposure to the various asset classes. Current yield data is then analyzed within the framework to determine the asset mix.
Dividend yielding stocks, non-investment grade bonds, Real Estate Investment Trusts (REITs), master limited partnerships, preferred stocks, are samples of the security types the fund may purchase. The various asset classes are evaluated for relative value to the overall portfolio mix. Depending on the size of the fund and cash flow needs, investment opportunities are evaluated for their contribution to the yield of the portfolio as well as risk. Individual securities may be purchased or a fund vehicle, such as an exchange traded fund or mutual fund, after taking into account concentration and diversification requirements.
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Diversified International Fund Process
The first step in the investment process is to screen the relevant universe of 1700
stocks to identify companies likely to outperform using a proprietary screen called
Return Pattern Recognition®. The screen identifies companies currently exhibiting
specific financial and economic characteristics that have historically proceeded
periods of outperformance for stocks in their respective industries.
The approximately 150 best companies identified in the screening process are put
through a second more rigorous review. In this step, EARNEST Partners develops an
investment thesis for each company. This thesis must be tested and generally includes
conversations with the company's management team and industry specialists, a review
of the company's financial reports and condition, and analysis of the industry,
competitive landscape and any real time events that might impact the company. EARNEST
Partners seeks companies in attractive industries with developed strategies, talented
and honest management teams, sufficient funding, and strong financial results. The
collective experience and diverse perspectives of their investment team members
are an advantage in determining which companies are best positioned to meet or exceed
expectations. Any company that does not pass the exhaustive fundamental analysis
The final step in the investment process is to construct a portfolio that includes
those stocks that are expected to have the best performance and that effectively
manage risk. A statistical approach called downside deviation is used to measure
the likelihood of significantly underperforming the assigned benchmark. Using this
information, investments are selected that blend together to manage downside risk.
The portfolio is reconstructed until downside deviation is within acceptable limits.
The result is a portfolio of stocks with high expected excess returns and limited
risk of meaningful underperformance.
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Dynamic Asset Allocation Fund
The Dynamic Asset Allocation (DAA) fund follow a series of rules-based steps that aims to deliver an objective, consistent investment process. The strategy examines and attempts to identify trends in over 20 asset classes including, but not limited to: US equities (large cap and small cap), international equities (developed, emerging, and frontier markets; large cap and small cap), US fixed income, international fixed income, commodities, real estate, and master limited partnerships. Exchange traded funds are primarily used in order to gain exposure to various asset classes, while maintaining liquidity and diversification.
The strategy follows a systematic approach that rebalances periodically by purchasing exchange traded securities displaying positive trends and selling assets that show negative trends. The objective method utilizes numerous technical indicators in order to determine the trend of an asset class and whether the asset class is “over-bought” or “over-sold.” By weighting the factors based on the effectiveness in previous time periods, the quantitative process can overweight or underweight certain factors.
The Dynamic Asset Allocation fund aims to manage volatility and enhance total portfolio returns by maintaining diversification across a wide array of asset classes and systematically investing where it identifies opportunities.
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International Small Cap Fund
Using a company-by-company approach, we analyze balance sheets, income statements, and assess each company’s future earnings and cash flow stream. From this financial information, we build our fundamental stock selection disciplines to identify the most attractive stocks. We use a formal system to rank the entire international small cap equity universe, from most attractive to least attractive, emphasizing the following bottom-up, fundamental measures:
- Business Improvement - Focus on companies exhibiting accelerating business conditions as an early sign of growth.
- Management Quality – Evaluate long-term sustainability of a company’s fundamental improvement by analyzing its operating performance and management’s skill in increasing shareholder wealth.
- Relative Value – Recognize business improvement early by buying and holding companies significantly below their fair market value given their growth prospects.
All new buy ideas come from the highest ranked securities and sell candidates are identified from a drop in rank. Anytime a wide shift in rank occurs for an existing holding, the investment team will conduct a review to ensure we understand the change. Starting with theses ranks, the investment management team then evaluates the relevant current events, liquidity, and growth and valuation measures to ensure that each stock matches our philosophy and process. Once consensus is reached by the investment team, the buy/sell decision is made.
As a result of our process, the international small cap equity portfolio will consistently hold companies with higher short-term forecasted growth rates purchased below or at approximately a market P/E.
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Louisiana and Mississippi Tax-Free Income Funds Process
The tax-free investment process begins with a bottom–up analysis that seeks to leverage our extensive knowledge of the local economies of Louisiana and Mississippi.
Our local presence provides us with first-hand knowledge of the events that impact our state and local governments and how our municipalities will be affected.
Utilizing this information we seek out high quality, undervalued bonds which are exempt from state and federal income taxes.
We are a "top down" fixed income manager. Macro-economic outlook guides our overall
strategy. The economy, interest rates, inflation, monetary policy, fiscal policy,
and the shape of the yield curve are primary factors which influence our sector
diversification, duration strategy and yield curve structure. Historical spread
relationships versus risk free returns, and inflation are analyzed in search of
undervalued securities. Self imposed issuer and duration limits (for example, the
maximum range from our duration target is 35%) further guide and control our process.
Economic meetings are held monthly and involve our Chief Investment Strategist,
the Director of Fixed Income, the Director of Equity Research, and staff.
Investments are selected based on our fundamental analysis of individual securities
and their issuers in light of the following:
- Issuers’ financial strength and stability
- State and local economic environment
- Overall municipal bond market conditions
- Political events
- Regulatory climate
- Yield vs. sector average
Factors we consider include:
- An instrument’s credit quality
- Collateral characteristics
- Indenture provisions
- Issuer’s management ability
- Capital structure
- Ability to meet current obligations
- Ability to raise revenues or increase taxes
- Anticipated or actual budget deficits
Portfolio targets are employed regarding issuer diversification, sector concentration,
quality rating and liquidity.
The result is a well diversified investment grade portfolio of municipal bonds engineered
to produce an attractive level of current income exempt from state and federal income
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The Micro Cap Fund’s investment process starts by screening for companies within the Russell Microcap Index with a market capitalization of 25MM to 750MM. We run a proprietary quantitative model ranking the individual stocks within their respective sectors based on various value, growth, and momentum factors including, but not limited to, the following fundamental characteristics: Book to Price, Cash Flow Yield, Free Cash Flow to Price and Relative Price Momentum. We then use fundamental analysis to look for reasons why we shouldn’t buy a highly ranked stock, such as low liquidity, pending litigation or legislation, or any other company specific issues. We end up with a portfolio of 50 to 70 small cap stocks that we believe will provide the best returns over the long run.
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Quantitative Long/Short Fund Process
Using the S&P 1500 as the universe of stocks we choose from, our quantitative model
ranks stocks according to their relative attractiveness based on the following factors:
- Company Buybacks
- Financial Strength
- Analyst Earnings Estimates
- Earnings Quality
- Economic Value Added (EVA)
After the model has ranked each individual stock in the universe, we use the same
information to rank industries. Our strategy is to focus on buying the highest ranked
stocks in the highest ranked industries and to “short” the lowest ranked stocks
in the lowest ranked industries. Parameters are in place to maintain appropriate
diversification among sectors and industries to reduce risk.
We also conduct a qualitative overview of each stock held in the portfolio using
fundamental research and technical factors such as relative price strength.
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U.S. Small Cap Fund
The U.S. Small Cap Fund’s investment process begins with a screen for companies with market
capitalizations that fall within or below the current range of companies in either the
Russell 2000 Index or the S&P Small Cap 600 Index, or below the three year average maximum
market cap of companies in either Index as of January 31 of the three preceding years.
This screen produces about 1700 stocks that we then run our proprietary quantitative model
on to rank stocks based on factors such as momentum, value and earnings. We then use
fundamental analysis to look for reasons why we shouldn’t buy a highly ranked stock,
such as low liquidity, pending litigation or legislation, or any other company specific issues.
We end up with a portfolio of 50 to 70 small cap stocks that we believe will provide the
best returns over the long run.
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