Table
of Contents

• Equity Portfolios
• Balanced Portfolios
• Mutual Funds

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Copyright © 1998 - 2016
Brae Head, Inc.

Investment Process
 
To build and protect purchasing power over time Brae Head asset allocation and security selection emphasizes total return, the combination of cash flows from dividends or interest with the capital appreciation of the underlying security.
 
Asset allocation is based on each client’s indicated risk tolerance. Each portfolio will have a diversified array of non-correlated securities. Each portfolio will have a composition of “risky assets” (equities) and “risk-free” or low-risk assets (fixed income securities and money market instruments).
The degree of systematic risk in each client’s portfolio is monitored and updated as interest rates and market risks change.
 
Stock selection is based on company profitability and sustainability of earnings per share growth. Though diversification is essential to mitigate risk, Brae Head will overweight the strongest economic sectors while avoiding cyclical sector rotation.
 
Company selection is based on strong fundamentals. Companies are screened with the following criteria:
 
-exceptional profitability
-financial strength
-an understandable, viable product
-preeminent market share
-barriers to entry
-a transparent balance sheet
-consistent earnings per share growth
-consistent real growth, of revenues and income
-consistent dividend growth where applicable
-management excellence
 
Newly constructed portfolios have a mean Price/Earnings ratio significantly lower than the S&P 500 Index and a dividend yield significantly higher.
 
International exposure is primarily from American companies with substantial international market share. Brae Head will position a handful of non-American companies that trade on the NYSE, for example, Royal Dutch Shell and Honda Motor.
 
Taxable fixed income portfolios are constructed with the following criteria:
S&P rating of A- or better; maximum maturity of 10 years; issues from well known companies or agencies.
 
Tax-exempt portfolios share the same criteria as taxable fixed income portfolios except that scrutiny is given to the demographics (the tax base) of the issuer and maturities and portfolio duration may extend beyond 10 years.
 
Newly constructed fixed income portfolios will have securities purchased between 98% and 102% of par with preference given to new issues and par purchases.
 
Balanced portfolios are a ratio of equity and fixed income securities, the proportions of which are determined by the client asset allocation.
 
Exchange traded funds, indexes and trusts may be used to obviate specific stock selection in certain sectors where exposure is warranted but stock-specific risk is high.
 
Summary:
 
-Growth of earnings and dividends can lead to increases in share prices. Increased share prices plus increased dividends enhances the total return of the portfolio.
-Cash flows from dividends and interest buffer portfolio volatility.
-Portfolio risk is managed by through diversification and allocation.
-Individual security risk is managed through financial strength, liquidity and consistent earnings growth.
-Initial portfolio P/E lower than the S&P 500 and average yield higher than the S&P 500 contributes a value component to a portfolio and helps optimize the risk/reward ratio.