The RBCM investment management team uses a multi-stage investment process consisting of qualitative and quantitative screening, bottom-up fundamental analysis, and decision-making and portfolio construction. The team builds and manages a portfolio of approximately 20 companies that we have identified as the best investment opportunities from a large universe of high-quality companies.

Universe

The RBCM Investment Management Team starts with a global universe of large and mid cap companies.

Quantitative Screen

First, we use a multi-factor screen to vet high-quality, dividend-paying and dividend growth companies. Companies are initially screened based on the following threshold criteria:

  • Dividend growth 10% or better for at least five years
  • Dividend yield of >1.0%
  • Market capitalization > $2 billion
  • Low debt levels relative to other firms in the industry

From these rigorous screens we extract a research universe of approximately 250 stocks.

Fundamental Research

The majority of our work is in bottom-up, fundamental research. To select candidates for inclusion in the Portfolio from the approximately 250 stocks that pass the initial quantitative screening process, we determine historic earnings and dividend growth rates and dividend policies, generate estimates of future dividend increases using outside data sources and proprietary modeling, and evaluate the ability to fund growth using cash generated from operations. We particularly look for a long track record of positive economic value added, or profits net of the cost of both debt and equity capital. The fundamental stage typically results in 2-3 potential portfolio holdings per sector or industry.

Decision-Making and Portfolio Construction

From the initial list of 250 potential holdings, the team builds and manages a portfolio of 20-25 holdings, with a goal of maintaining industry and sector diversity to reduce the residual risk associated with more focused portfolios. We then apply sophisticated analytical tools to measure the interaction of portfolio components for return, volatility and cross-correlations in order to achieve true portfolio diversification. The end result is a portfolio consisting of what we believe are the best investment opportunities from a large universe of high-quality companies.

Monitoring and Sell Discipline

We continuously monitor the companies in the portfolio, comparing their business and financial performance to our expected results. Companies are trimmed or removed from the portfolio under the following circumstances:

  • Portfolio rebalance. If an investment that typically starts with a 5% weight appreciates to 15% of the portfolio, we will normally trim the position (profit taking).

  • Deteriorating fundamentals. When we judge that a company is no longer willing or able to continue to raise its dividends out of net profits, or when we see declining revenues or margins, disruptive management changes, or industry or company factors we judge are likely to make it difficult to increase dividends, we will likely remove that company from the portfolio.

  • When there's a new idea with more conviction. If we find a much better alternative investment opportunity, we will sell to generate cash for the new purchase.

  • Underperformance. Despite our rigorous due diligence process, we do occasionally misjudge the management or competitive dynamics of a company. When this happens, we sell and move on to a better opportunity.