Cutler Capital’s investment team follows a five-step investment process.
Step #1: Initial Screening.
Cutler Capital begins its screening process with a weekly review of the global universe of convertibles, including the U.S., Europe and Asia. In particular, we look for securities that offer attractive yields, relatively low conversion premiums, close proximity to their bond floor and equity sensitivity. At this point in our screening process, we look equally at all industries and market caps.
Step #2: Structural Analysis.
We examine the structure and features of the securities to select those issues that have the most attractive risk/reward profile (that is, high equity upside sensitivity, plus high equity downside protection).
Step #3: Credit Analysis.
For those securities that remain in view after Steps 1 and 2, we begin to probe more deeply, starting with analysis of the creditworthiness of the issuer and the security’s place within the issuer’s capital structure. The goal of this analysis is to identify those securities that offer adequate protection of principal, although it is also instrumental in helping us to develop accurate valuations.
Step #4: Fundamental Analysis.
The final step before investment is “bottom up” fundamental research. This analysis completes our understanding of the underlying security’s value and risks.
Step #5: Disciplined Process for Selling.
- We believe the underlying common stock has become overvalued
- The convertible no longer meets our screening criteria
- The industry fundamentals are no longer attractive
- We believe the likelihood of further gains is outweighed by potential downside risk