US Equity - Market Neutral Strategy Hedged in C$


Investment Objective

The investment objective is to generate a risk-adjusted return by investing in American listed securities, while reducing risk by limiting net market exposure.

The strategy will have a diversified portfolio where investments should be uncorrelated to equity market and diversified by investing in various industries. The resulting portfolio should have a low net exposure to the equity market. The strategy will invest in American equity securities, such as listed common shares and will also employ currency futures and spot/forwards to hedge the currency in the portfolio. The base currency of the strategy is Canadian Dollars.

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 methodology is based on a quantitative/systematic approach using a proprietary financial health indicator to identify high-quality companies. The indicator is calculated using financial ratios from the companies\' cash flow statement.

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.

Portfolio construction

The long stock strategy is built from a universe of stock that score above median in terms of financial health condition score and exclude stocks that have a high probability of experiencing a Chapter 11 events (Value Trap). The universe holds 225 stocks on average .

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.

The short stock strategy made of stock in the 4th quartile in terms of financial condition score and above the median in terms of market capitalization. The final portfolio is made of approximately 50 to 60 stocks on average.



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