Victory Portfolio

Separately Managed Account

The WCA VICTORY PORTFOLIO seeks capital appreciation through a value-driven, flexible-mandate. Candidate companies may vary in size, sector, and style. When fully invested, the portfolio seeks to invest in 20-30 companies that are:

Growing

Portfolio candidates should have a demonstrated ability to grow shareholder value over time. The compounding effect of profitable growth is a powerful driver to returns and why this is a primary focus of our analysis.

Consistently Profitable

Not all growth is good growth. Growth can be achieved from unprofitable investments, but detracts from shareholder wealth over time. Therefore, we seek businesses that are demonstrating the profitable use of capital in generating cash flow and returns to investors.

Well-Capitalized

Companies should have relatively low amounts of debt. As a general rule, we believe that companies with less debt on the balance sheet have greater financial flexibility. This flexibility becomes even more valuable during periods of economic distress.

Attractively Valued

Candidate companies should trade at a discount to our estimate of intrinsic value under a set of conservative assumptions. In so doing, we hope to establish a “margin of safety” that helps us to avoid unnecessary risk without sacrificing return. In situations where valuations do not reflect underlying risk, the portfolio may hold cash.

Investment Process

From a universe of over 1,500 companies, we identify those that appear to be consistently profitable, growing, and well-capitalized firms. Candidate companies are subjected to a detailed financial analysis and quantitative valuation process in an effort to establish a reasonable estimate of intrinsic value. We consider qualitative aspects, including industry dynamics, competitive forces, and management quality, as part of a further due diligence process. Portfolios are constructed of 20-30 securities when fully invested with a typical position size near 4%. In situations where we are unable to find investments that meet our criteria, we may seek opportunities elsewhere or hold cash as appropriate. We will sell a security if the price moves beyond our assessment of value, long-run fundamental prospects decline, or if the balance sheet becomes excessively risky. We will continue to hold a security if the company’s earnings power and our assessment of value rises ahead of the stock price.

Our discipline is simple, rigorous, and systematic. We believe the wisdom of this approach is a key element to our long-run success.


Valuations, Revisited
The stock market is on a historic run, with U.S. stocks eclipsing $42 trillion in value for the first time ever last week. The broad market, measured by the S&P 500, continues a decade of strong returns with the rolling 10-year real return for the market above 10% (Chart A,…
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Quality over “Style”
We look at how the “style” framework is leading many to question one aspect of traditional equity investing. An alternative framework focusing on a quality dimension is offered as a more appropriate approach given today’s environment.
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Cash as a “Real Option”
In the realm of corporate finance, “real options” are those that allow managers flexibility to make decisions in the future. Instead of making all decisions upfront, managers can wait and make additional choices in the future. The assumption, of course, is that conditions could change or more information might be…
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Quality Over “Style”
For years, stock investors have fixated on “style,” which means investing in “growth” or “value.” “Value” in this context is usually defined as buying stocks with low price-to-book or low price-to-earnings ratios. Some are now rethinking the very foundations of this framework as the return to value indexes continues to…
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Focus on Flexibility Over Yield
The best-performing stocks since the beginning of the pandemic have had one thing in common — a high degree of financial flexibility. The worst-performing stocks were the least flexible. Before we start, it is important to define “flexibility.” For us, it has always meant low debt and high profitability. These…
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Bears, Bulls, and Zombies
The stock market is up over 40% from the March 23 bottom. This spectacular 50-day rise bookends the 33% market drop from mid-February to the March bottom. Overall, the S&P 500 moved by more than 70% in a little over three months, leaving many investors bewildered. But recent market action…
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Disclosures