US Equity - Dividend Quality Strategy


Investment Objective

The investment objective of the strategy is to build a Dividend Quality Strategy comprised of companies with strong residual cash flow available to shareholders, a strong balance sheet, a high payout ratio and a secure business model. The performance objective is to beat the S&P 500 index by more than 2% on an annualized basis over periods of 4 years. For shorter periods, the S&P 500 Value Index will also be used due to the intrinsic value characteristics that underlie our stock selection process.

Investment Philosophy

At the heart of our management process, we use fundamental data from the companies cash flow statements.

Academic Research and data analysis show that Residual cash flows have a much greater explanatory power than accounting profits. For companies in general, cash flow is their lifeblood. Are they creating cash or consuming it? If they're consuming it, then they have to find it somewhere, and may have to rely on the capital markets, which aren't at a very friendly time right now. Positive Earnings do not always necessarily imply positive cash flow.

Ultimately speaking, Residual Cash Flow to Shareholders is what matters.

Stock selection process

The investment is based on a quantitative/systematic approach using proprietary financial health indicators to identify high-quality companies The Companies are classified according to financial health and market cap to segment the market and focus on the best-performing buckets of smaller capitalization and higher financial health for the portfolio. The manager will also modify its investment criteria according to a volatility regime model. In case of risk-on regime, the strategy will focus on smaller stocks within the S&P 500 index, and larger ones in case of risk-off regime.

Portfolio construction

The main objective is to build a Dividend Quality Strategy comprised of companies with above-average financial condition health score, a strong balance sheet, a high payout ratio and a secure business model. The final portfolio is made of 50 stocks spread among all the GICS sectors.



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