Global Insight
Model
The Generation Global Insight Model is generally for clients whose principal objective is long-term capital appreciation.
The Global Insight Model invests primarily in securities of large capitalization companies, typically with market caps over $5 billion at the time of purchase, but may invest in companies with market caps of $2 to $5 billion. The Model employs a proprietary and systematic process to uncover large cap global equities which our analysis indicates are undervalued. The most undervalued securities form the focus group for our analytical team to concentrate its research efforts, and those that pass our research review process become targets for the equity portfolio. Our proprietary TRAC™ system is used in an effort to optimize buy and sell decisions for targets and portfolio holdings. In addition to rigorous stock screening and research, we utilize a parallel process to monitor economic and market risk.
| # | HOLDING |
|---|---|
| 01 | NETFLIX INC |
| 02 | META PLATFORMS INC CLASS A |
| 03 | CARREFOUR SA |
| 04 | COOPER COMPANIES INC (THE) |
| 05 | DIAMONDBACK ENERGY INC |
| 06 | GRUPO AERO DEL SURESTE S/ADR |
| 07 | COTERRA ENERGY INC |
| 08 | ADOBE INC |
| 09 | CHARTER COMMS INC CL A |
| 10 | WHITECAP RESOURCES INC |
FOUR PILLARS
A four-pillar approach
01Value Philosophy
Our most important pillar is our fundamental research and value investment philosophy. We analyze a company’s operations, finances and valuation to assess its risk and reward potential. A value strategy offers two advantages. First, a stock purchased below our estimate of intrinsic or fair market value offers the potential for outperformance as the stock ascends to fair value. Second, we believe that stocks trading below their fair value offer a “margin of safety”; that is, downside risk is mitigated because these stocks are detached from their fair value.
02Trade Optimization
Our proprietary security trading model, TRAC™, is used to gauge changing sentiment for individual stocks, sectors or overall markets. TRAC™ helps to optimize the timing of our stock purchases and sales. We aim to buy stocks when they fall to TRAC™ floors and to sell them when they hit ceilings or fall through floors.
03·04Market Risk & Economic Risk Management
Our two macro pillars are designed to manage risk. We monitor global economies and markets to alert us to potential economic downturns or severe market declines. Our Economic Composite evaluates economic activity by combining various economic variables into one composite to capture business cycle peaks. The Relative Indicator of Momentum model (TRIM™) is an algorithm that combines momentum and volatility to determine the primary trend of the market. When the economy hits a business cycle peak according to our Economic Composite or stock markets fall below their TRIM™ line, we may raise cash, alter portfolio holdings, and hedge our portfolios by short selling markets/sectors.
STOCK SELECTION
Stock selection process
The Global Insight Model employs a proprietary and systematic process to uncover large cap global equities which our analysis indicates are undervalued.
The most undervalued securities in our global large cap universe form the focus group for our analytical team to concentrate its research efforts for investment targets.
Our proprietary TRAC™ system is used in an effort to optimize buy and sell decisions for targets and portfolio holdings.
To find ideas we utilize our proprietary ranking methodology that ranks companies on combined valuation, business quality, financial strength, and momentum metrics.
Valuation
Stocks are ranked on valuation ratios such as P/E, EV/EBITDA, P/CF, and our own proprietary valuation ratios.
Quality
Stocks ranked on performance metrics such as return on equity, return on invested capital, etc.
Financial Strength
Stocks ranked on debt-to-equity, interest coverage, Piotroski F Score, etc.
Momentum
Stocks ranked on relative performance over the last 12 months.
EVALUATION
How we evaluate a business
Competitive advantages are critical weapons that keep a company ahead of the competition. Examples of competitive advantages are cost leadership (more for less), differentiation (more for more), scale, network effects, ownership of brands or intellectual property, favorable regulation that creates toll-booth dynamics, operational effectiveness, technological expertise, and financial flexibility. Without these competitive advantages, achieving a high and sustainable return on invested capital is nearly impossible.
We look for strong leadership teams that are aligned with the interests of long-term shareholders. Priorities should be extending competitive advantages, achieving best-in-class operational excellence, and establishing strong capital allocation policies.
We prefer companies run by owner-operators that have cultivated an entrepreneurial mindset across all levels of the organizational structure. Lean and flat structures enable companies to evolve with the operating environment and capture emerging sources of value with new products and services.
We value businesses in consideration of their macro environment, leadership, competitive advantages, and risk factors. The future is hard to predict; we strive for conservativism in our assumptions.
Purchasing companies below our estimate of intrinsic or fair market value offers the potential for outperformance as the stock ascends to fair value. We believe stocks trading below their fair value offer a “margin of safety”; that is, downside risk is mitigated because these stocks are detached from their fair value.
History is replete with examples of companies that stood still as the world changed around them. Competitive advantages that serve a company well today will erode over time if management fails to recognize changing consumer preferences or disruptive new technology that could upend the economics of their industry.
We look for management teams that look to the future. Such companies are not afraid to jettison business lines or make large investments to capitalize on opportunities—even at the expense of short term earnings.
We evaluate headwinds and tailwinds to identify threats or opportunities that may impede or accelerate growth over the short and long-run. Transitory headwinds such as input costs, irrational competition, wage pressures, etc., may create an opportunity should investors be overly pessimistic about their duration or intensity.
We prefer companies poised to benefit from secular growth drivers such as demographics, technological trends, or geopolitical forces rather than companies in cyclical sectors.
We unravel the prevailing narrative surrounding the company to understand the reasons why the investment opportunity exists. What information or understanding do we have that gives us an edge?
We prefer businesses with clear catalysts that will close the gap between price and our fair value estimate.
RISK MANAGEMENT
Risk management
We developed an Economic Composite to monitor the business cycle. Monitoring the business cycle is of paramount importance. Since 1965, two-year rolling losses of 20% or more have always been preceded by a business cycle peak. Equity markets tend to be more volatile following business cycle peaks than during periods of economic expansion.
Market drawdowns can occur outside the natural ebb and flow of the business cycle. The Relative Indicator of Momentum (TRIM™) is an algorithm we have developed that combines market volatility and momentum to model transition points that forewarn of a potential shift from a bull market to a bear market (a market decline greater than 20%). We use TRIM™ to monitor numerous global markets and commodities.
We may employ short positions, option positions, or other strategies, for risk management, in an effort to reduce volatility, lower drawdowns, moderate correlation to the overall market, or opportunistically to increase returns.