The Twenty under Thirty-Five (35/20) strategy is a fully invested portfolio owning 20 stocks priced under $35 (at time of original purchase) from a universe of approximately 2,200 domestic companies trading on U.S. exchanges, seeking a portfolio of individual stocks to generate long-term capital appreciation. Dividend income is ancillary and not considered in the construction of the portfolio.
INVESTMENT METHODOLOGY & PORTFOLIO CONSTRUCT
The strategy invests in the top 20 stocks of the approximately 2,200 domestic companies trading on U.S. exchanges with the lowest downside risk attributes (generally in the first decile) priced below $35 per share. The stocks are held until the downside risk score deteriorates into the fifth decile of all stocks, at which time the stock is replaced with a new stock priced below $35 and sporting the lowest downside risk score. The strategy is monitored weekly on current rankings of the quantitative scores. The investment decision process includes three distinct steps to determine value:
First An initial screen utilizes a quantitative value approach scoring each member trading below $35 per share on about 20 variables (e.g., free cash-flow, revenue stability, profitability changes and trend, leverage, stock price volatility and correlation, and earnings surprise persistency).
Second The data is used for analysis focused on downside risk; this measures the risk of a stock versus the potential return, with the goal being to avoid downside risk.