Investment Approach
McLaughlin Asset Management’s success in investing is achieved through a
disciplined, long-term investment approach. All portfolios are managed to match specific client needs and goals. No one client is the same; therefore, our main priority is to work closely with each client to understand investment objectives and develop appropriate investment policy.
Our goal is to provide superior service and superior investment performance, while protecting our client’s assets.
Investment Strategy
McLaughlin Asset Management employs a top-down and bottom-up approach in developing investment strategies based on a combination of thematic, fundamental, qualitative and quantitative variables for portfolio management.
[Top-Down]
Economic Outlook
Equity and Fixed Income targets are created
Fixed Income Issue analysis for inclusion in portfolio
Sector and Industry targets are made within the equity asset class
Equity Issues are identified for inclusion in portfolio
[Bottom-Up]
Equity Issues are further screened using a qualitative, bottom-up analysis
Top-Down
The first variable to consider, and probably the most important and overlooked, is an outlook of the current and expected economic market conditions. Secondly, after gathering those current and expected market conditions, McLaughlin Asset Management creates a fixed income and equity market assessment for the next twelve to eighteen months. From this information, asset allocation targets can be built which are vital to meeting long-term investment objectives.
All of these steps are modified under each client’s investment policy to coincide with the overall outlook for the fixed income and equity markets. From this approach, individual strategies are established for each asset class, and issues are selected within that asset class of the portfolio. All of these aspects are closely monitored on a continuous basis.
Equity Investing
Experience has shown that investing in companies, small or large, with growing earnings at reasonable valuations is a proven method for success. McLaughlin Asset Management invests for the long-term and seeks to minimize fundamental disappointments.
Two of the tools we have developed internally over the years are the equity monitor list and model equity portfolio. These two items help establish the sector weightings and the relative weightings of an issue within the sector.
We monitor around 150 stock issues with a target of 35 to 50 stocks within each portfolio, in order to adequately diversify the portfolio.
Some of our criteria for stock selection include:
1.Sector/industry diversification:
We identify sectors and industries that appear attractive on a top-down basis, while avoiding excessive sector and industry bets. Variables for evaluation include:
sensitivity to interest rates and yield curve
general growth environment relative to other sectors/industries
factors (commodities prices, workforce, inflation, etc.) that influence cost and pricing
2.Quantitative Valuation:
We evaluate stocks for inclusion on our equity monitor list that fit into our top-down sector and industry strategies. Variables for issue inclusion consist of:
P/E ratio should be low relative to market & industry in certain cases
earnings growth/trend should be positive
upside potential greater than 15% based on analyst price targets
balance sheet should be sound – prefer debt/capital less than 50%
dividend yield is a plus if all other factors equal
3.Qualitative Valuation:
Lastly, we examine stocks in our top-down approach using a bottom-up analysis within each sector and industry. This is accomplished with a combination of our equity monitor list and analyst research. Variables for issue addition involve:
overall business model must make sense
analyst ratings positive (up to three different analysts)
relative attractiveness to other companies within industry is considered
general quality must be good
management team must be sound—especially integrity
downside risk considered
Sell discipline – reason to sell or trim a position include:
1.appreciation in price
2.anticipation of economic or industry weakness
3.emergence of a more attractive investment
4.deterioration in a company’s fundamentals
5.emphasis on price targets which reflect the analyst’s outlook for the company and the market
Fixed Income Investing
McLaughlin Asset Management, Inc. uses a market-sensitive active approach to the management of fixed income securities. The duration or maturity of the bond position of the portfolio is reviewed frequently. We consider the type of bonds to hold with regard to coupon, call provisions and premium or discount bonds. U.S. Treasury, Government Agency and Corporate Bonds are used depending on which security is most attractive at that time.
We favor individual bond issues rather than bond mutual funds due to customization and asset control, control of tax liability, and lower investor expense. Also, in a rising interest rate environment individual issues provide greater protection against loss of market value.
The Fixed Income Strategies Employed include:
Anticipating cyclical movements in interest rates: If a decline in interest rates is anticipated, the average maturity of the bond portfolio will be increased. Portfolio changes are within established guidelines to assure that both required income levels are maintained and your risk parameters are effectively controlled.
Taking advantage of temporary market disequilibrium, such as:
differences in yield between similar securities
relationship in spread between market segments
