Our Approach to Investing: Judgment plus Discipline.
At Cutler, we believe that long-term risk-adjusted performance is best achieved by combining the judgment of seasoned portfolio managers with the discipline of a well-defined investment process.
Our investment strategies typically include a core portfolio of convertible securities. Depending on the investment mandate and risk profile, we then adjust the emphasis toward capital preservation or toward growth. While our strategies range from relatively aggressive to more defensive, the basic tenets of our investment philosophy remain the same across all of our portfolios:
Our Security selection processes utilizes a bottom-up approach that starts with a proprietary screen to generate ideas, followed by detailed structural, credit, and fundamental analysis to complete our understanding of the securities value and risks.
We look for securities that appear to be undervalued. This sets the stage for capital appreciation and long-term outperformance without undue risk to principle.
Capitalize on “Positive Asymmetry”.
Certain convertibles have structural features that give them an advantageous risk/return profile. In essence, these securities can have significant upside potential yet still have strong downside protection. In our investment process, we screen the global convertible universe for issues with low conversion premiums, attractive yields, and short maturities. We look for candidates that have a delta (a measure of sensitivity to stock prices) that is between 25% – 70%. We typically avoid busted or deep-in-the-money convertibles.
Equities we invest in, including Community Banks and REITS, typically pay attractive yields which act as a buffer in down markets and enhance returns in up markets.
Balance Risk and Reward.
We constantly monitor and evaluate risk/reward profiles at the individual security level and at the portfolio level. We also look for potential catalysts that could change our level of conviction towards any particular position. Taking profits and limiting losses is an important part of our discipline, especially in our more conservative portfolios.
Invest in What We Know.
We perform our own credit, market, and interest-rate research. We track securities and companies over time and develop a history with the issuer that is invaluable to our assessment of the investment potential of each security.
Buy for the Long-term.
By the nature of our investment process, we favor strong companies with solid long-term prospects and we manage our portfolios for long-term appreciation. At the same time, when we do trade, we strive to be opportunistic in order to generate incremental performance.
Commit to Performance for our Clients.
Our focus is on delivering performance for our clients, not on gathering the largest amount of assets. Limiting assets under management has two key advantages: it lets us manage portfolios that are composed exclusively of our “best ideas,” and it lets us operate in sectors of the market that larger firms typically overlook. Our investment approach is truly one that is designed to exploit the advantages of being a niche player in a growing yet still inefficient market.