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Hudson Canyon’s institutional equity investment style is large capitalization core. The most important decision in the investment process is asset allocation. We adhere to a policy of staying fully invested with minimal cash. We then follow a three step “top-down bottom-up” investment process. The three steps are: sector weightings, individual stock selection, and portfolio construction.
- Sector Weightings
We overweight, underweight, or equal weight our portfolios relative to the ten sectors that comprise the S&P 500 Index. Some of the factors we analyze in determining sector weightings include the rate of and trend in consumer spending, interest rates, energy prices, business spending, commodity prices, industrial production, and the strength or weakness of the U.S. dollar.
- Individual Stock Selection
Hudson Canyon invests in the stocks of large-capitalization U.S.-based companies and American Depository Receipts (ADRs) that have long histories of success and are generally considered leaders in their industry. We generally look to buy companies that are trading at the low-end of their historical valuation range. We also typically seek companies that have a 5-year earnings per share growth rate that exceeds the forward price earnings ratio and that have returns on equity of at least 15%. We sell a stock when its current stock price becomes expensive relative to historical valuation, when fundamentals deteriorate due to increasing competitive pressures, or when there is an unexpected change in senior management.
- Portfolio Construction
Our clients’ portfolios typically hold about 50 stocks. Annual turnover is generally in the 30% to 40% range. The weightings of our holdings range from between 1.5% to 4.0% of the portfolio.
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