Each portfolio is managed individually and in accordance with a risk controlled model portfolio constructed for each strategy.

BRC Investment Management LLC pursues a uniform investment philosophy and process across all client portfolios. Our philosophy and proprietary models are strongly rooted in our's and other's academic study of economics, security analysis and behavioral psychology. We believe that future investor expectations are strongly influenced by the opinions, forecasts and announcements of perceived market experts, including Wall Street analysts and company management. By incorporating a combination of proprietary quantitative, fundamental and behavioral valuation techniques, we are able to significantly predict which companies are likely to be the beneficiaries of future favorable earnings announcements and upward earnings estimate revisions. The steps of the investment process are outlined below:

Initial Stock Identification

The first step in our investment process is to apply a series of internally developed and proprietary quantitative models to the investment universe. Our models provide the investment team with a ranked list of stocks. Rankings correspond to the greater or lesser likelihood of a particular company announcing a positive earnings surprise or being the subject of positively-revised analyst reports. We perform our ranking on a sector-by-sector basis, which gives us a diversified set of top stocks. We select the most attractive 10% of stocks from each sector for the next step in our process—fundamental analysis.

Fundamental Analysis

Our equity analysts conduct in-depth fundamental research on each of our top investment prospects. In conducting their evaluations, our analysts are focused on the identification of financial characteristics that, in our view, indicate overly aggressive management accounting procedures and correspondingly questionable earnings quality. Rather than attempting to forecast future earnings per share, we seek to discover companies with high-quality accounting, solid business models, and attractive valuation characteristics that are based on actual earnings. We expect the stock prices of such companies to be most responsive to the kind of positive events our quantitative models have predicted.

Portfolio Construction

Purchasing Decisions— The model portfolio is constructed from the securities that have reached the top 10% of our investment universe based on our quantitative model ranking process and have been screened and approved following our fundamental evaluation process. The final decision on which securities to purchase is made collaboratively by the senior members of the investment team.

Selling Decisions— The process for selling securities is equally disciplined and methodical. When a holding, regardless of absolute gain or loss, drops in our rankings below the 40th percentile of our quantitative model, it becomes an immediate candidate for replacement. Because of the discipline enforced by our process, a consensus decision is generally easy to achieve and the security is sold.These buy and sell thresholds have been a constant element in our process since inception of the strategy. Selection of the 10% and 40% parameters was not arbitrary. These limits were established based on research we have conducted and continue to update. Our research indicates that the maximum return to our clients, after commissions and execution costs, is achieved at these thresholds.

Sector Allocation—Throughout the history of our composite, our allocation to economic sectors has been very stable. Our process adds alpha through stock selection, rather than sector “bets” against the benchmark. Thus, we have established a target number of positions for each of the sectors included in our universe. Our target for each sector is designed to create a weight that is in proportion to the weighting of the equivalent benchmark sector. Because our target focuses on the number of positions in any particular benchmark sector as opposed to its market cap weighting, this methodology has resulted in relatively stable and highly predictable sector exposures over time.

Trading—All client portfolios are managed versus a “model” portfolio that reflects the buy and sell decisions of our investment team. The professionals on our Trading desk have discretion to place orders in the location and manner that maximizes the speed at which we obtain positions, while minimizing total execution costs.

 

Risk Control

Using analytical tools that are distinct from those of portfolio management, the risk management process assesses the risks embedded in the strategy. We closely monitor the levels and trends of fundamental factor exposures, economic sector exposures, and the composition and magnitude of residual risk versus various benchmarks and indices. This risk management process has resulted in stable sector and style exposures, and a realized beta significantly lower than the market.