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:
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.
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.
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.
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.
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.
Page through any investment brochure, factsheet, or presentation, and you’ll eventually get to the disclosure language claiming “All investing involves risk.” For fixed income investors, credit spreads over risk-free U.S.