Alhambra’s Fortalice equity strategy uses an earnings revision model as the foundation for stock selection. Central to this style is a belief that positive earnings surprises generate positive price movements, while negative earnings surprises generate negative price movements.

We combine fundamental research analysis with a quantitative, earnings momentum-based overlay to create highly diversified equity portfolios that can stand alone or be a fortifying allocation in your balanced investment account. The strategy, as the name implies, emphasizes strong (from the Latin, fortis) companies with positive earnings momentum and sound fundamentals.

Quantitative Modeling

 A proprietary multi-factor process is employed utilizing a quantitative screen to generate a pool of potential purchase candidates. The model identifies and ranks companies according to the Fortalice criteria from a universe of approximately 6,600:

  • Market Capitalization over $1.5 billion
  • Satisfactory Analyst coverage to form a consensus
  • Positive Earnings
  • Positive Free Cash Flow
  • Targeted Present Value Ranking
  • Targeted Earnings Revision Ranking

Fundamental Research

On a weekly basis, the by-product of the quant screen is reviewed and fundamental investment research is performed for new names of interest. We look at various aspects of a company’s financial condition and business prospects:

  • Income Statement
  • Balance Sheet
  • Cash Flows
  • Sources of Growth
  • Competitive Position
  • Profit Margins
  • Pricing Power

The result of these two steps is a pool of stocks with real business momentum, reasonable valuation, and a blend of appealing fundamental qualities. This purchase list spans all economic sectors, and a large number of industries within these sectors.

Portfolio Construction

  • Apply any client-specific restrictions to define stocks eligible for purchase in a particular portfolio.
  • Start from a sector-neutral posture with minor adjustments based on model outputs.
  • Create a diversified portfolio of 40 – 60 stocks with broad economic sector representation and target stock selection as primary means of generating positive risk-adjusted returns.
  • Continuously monitor portfolio statistics vs. appropriate benchmark.

Sell Discipline

We employ a blend of model signals, fundamentals, technical factors and valuation. Two or more factors turning negative create a sell signal. Of these, valuation alone is the least important. We believe in letting winners run; however, as weightings in a particular issue increase due to price appreciation, they are typically trimmed.

  • Loss of earnings momentum
  • Concern over company fundamentals
  • Deteriorating stock price performance
  • Excess valuation

Ready to talk?

Before we invest the first penny for you, we need to know about you. We need to find out what’s important to you, what your dreams and goals are and the type of investing that will give you peace of mind.