Fundamental Approach to Value: Blending Art and Science
At Ceredex, we define ourselves as traditional value investors with a keen focus on rigorous fundamental analysis. We seek to deliver excellent long-term investment performance by employing a well-crafted, methodical stock selection process with the dexterity to adapt to changing market conditions. Our approach is equal parts science (screening for dividends and key financial data) and art (our team’s interpretation of the data).
Our investment philosophy is driven by the belief that markets in the short term are inherently inefficient, and opportunistic investors with a long-term view can exploit sentiment to enhance returns. We conduct comprehensive research seeking to identify undervalued, dividend-paying companies that are trading at the lower end of their historical valuation ranges and display positive catalysts (such as management changes, restructuring, or new product introductions) that have the potential to drive meaningful price appreciation.
Three key factors differentiate our investment approach
DIVIDENDS
Dividend-paying companies reflect management’s discipline and confidence in the ability to generate positive cash flow and earnings.
VALUATION
Rigorous absolute and relative valuation analysis serves to identify low-expectation stocks that offer opportunities for growth.
FUNDAMENTALS
Bottom-up, fundamental research indicates whether a company has a potential catalyst for improvement.
Risk management is built into every step of our process. Starting with our investment philosophy, we view a company’s business exposure as the primary risk factor we can control. At the portfolio level, we manage risk by initiating security weights at 1-5% of each portfolio, and conduct detailed position reviews. We monitor the portfolios daily, adjusting for fundamental news flow and price movement, and we consistently analyze quantitative data to confirm our portfolio construction.
This focus, coupled with strict enforcement of our investment guidelines, has enabled us to construct value equity portfolios that have withstood the test of market cycles, helping our clients achieve their goals.
Disciplined Buy/Sell Process: “Three to Get In, One to Get Out”
In our search for value, a stock must meet three criteria to be considered for a Ceredex portfolio. A change in any one of these—dividend elimination, nearing a valuation target, deteriorating fundamentals—will result in the stock’s removal from the portfolio.
Buy Decision
A stock requires all three for purchase...
Pays a Dividend
Attractive Valuation
Strong Fundamentals
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Portfolio Holdings
Dividend-paying stocks with attractive valuations and improving fundamental momentum that may drive price appreciation. Large Cap: 30-50, Concentrated Large Cap: typically 20, Mid-Cap: 40-60, and Small Cap: 50-80.
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Sell Decision
...but a change in only one of these factors will trigger a sale.
Or
Dividend is Eliminated
Valuation Targets are Achieved
Fundamentals Deteriorate or the Timing of the Catalyst is Extended
Or