|
Clear Thoughts
How do you define style?
Originally Published Thursday, June 30, 2005
| In terms of style, what separates Clear from mutual fund companies? How do we define style? |
When reading our web site, one of our summer interns asked several questions around the definition of style within equity management.
First we went to the dictionary to find the general meaning of style.
The way in which something is said, done, expressed, or performed: a style of speech and writing.
- The combination of distinctive features of literary or artistic expression, execution, or performance characterizing a particular person, group, school, or era.
- Sort; type: a style of furniture.
- A quality of imagination and individuality expressed in actions and tastes: does things with style.
- A comfortable and elegant mode of existence: living in style.
- The fashion of the moment, especially of dress; vogue.
Many people in the investment community define style as; the investment approach used to reach stated objectives, now what does that mean in English the intern asked?
Clear Asset Management likes to break most questions down into components. We use the word style in a similar way to the above definition, and use multiple words to describe our investment management styles. We think, breaking it down will define the word style, and our investment management styles, all at the same time.
First, we use the term Market Cap as a component of style. Market Cap is short for market capitalization; meaning the market price of an entire company, calculated by multiplying the total number of shares outstanding by the stock price per share.
Clear Asset Management defines Cap in ranges:
Small Cap - $300 million to $999 million
Mid Cap - $1 to $7.99 billion
Large Cap - $8 billion and over
Different firms have different ranges when defining what cap means to them, investors should be very careful of these definitions, especially of the range an investment firm defines as small. You may find illiquid stocks, where your investment is potentially moving the stock price.
The next descriptor we use is to define style is Growth or Value.
We describe growth stocks as companies that are growing faster than their peers. They usually are priced higher, on a price to earnings basis, as the market expects their earnings to continue to increase, and therefore will pay more for the future earnings of the stock based on their earnings today.
We describe value stocks as companies that are undervalued by the market. Perhaps they had a bad quarter, their overall market is seen as maturing or there was some other short term bad news that may be company, sector or overall market specific. Without this set of circumstances driving the price of the company stock down, because the company is fundamentally sound, it may return to its former price, and ultimately growth rate. These stocks usually are priced lower, on a price to earnings basis, as the market expects their earnings to remain stable and therefore will pay less for the future earnings of the stock based on their earnings today.
So we define our portfolios by investment style, for instance; Mid Cap Growth companies are growing faster than their peers in the $1 to $7.99 billion market capitalization range.
Clear Asset Management is set apart from most investment managers by our strict adherence to style purity. Style purity simply put, is that within each portfolio; we do not mix market caps, we do not mix growth and value stocks, and when we promise that there are stocks in our portfolios, investors do not find derivatives, bonds or any other kind of performance chasing financial instrument frequently found in many mutual funds.
This may seem simple, but in mutual fund land, many investment objectives are so broad that there are many flavors of style. This can mean besides financial vehicles that you never intended to purchase, that you may own the same stock in several different styles of funds. This can add to your risk as well as skew your actual asset allocation versus your target. Of course it may be near impossible to know exactly what is in your mutual funds with their general lack of transparency.
Rest assured that when investing with Clear Asset Management each investor receives; precision style, style purity, no securities overlap, and complete disclosure of holdings and trades. When your name begins with Clear; what else would you expect!
|
|
|
|
 |
|
