Focused Investment Approach - Domestic

GCM’s focused investment approach leads to our most concentrated strategies with higher levels of expected active risk and return. These strategies are managed according to a core style of investing that is generally less prone to market shifts in style, size and direction.

Philosophy and Objective
The approach is founded on the philosophy that we can capture excess return that arises out of certain pricing inefficiencies by investing in a diversified portfolio of companies that are undervalued with superior earnings fundamentals. The overall objective of our focused strategies is to construct risk-controlled portfolios that provide long-term capital appreciation by outperforming their respective benchmarks.

Before we begin to build the portfolios, we evaluate the investment universe using our Total Composite (“TC”) Model. The TC Model is based on bottom-up, fundamental research, which it conducts within a systematic, objective framework. The model evaluates companies based on valuation, earnings fundamentals and trading momentum to provide a comprehensive view of each company’s relative valuation, operational and financial performance, and stock price behavior. The model then ranks the universe of stocks from most attractive to least attractive.

Portfolio Construction
The portfolio construction process for our focused strategies, like the research it is built upon, takes a bottom-up, fundamental approach. We seek to add value for our clients primarily through stock selection. These strategies typically hold a static number of securities that are diversified among the ten major economic sectors. Each new position typically enters the portfolio at an equal weight, and exposure to any particular issuer is limited. We also employ risk controls that limit over- or under-exposure to any particular sector, though within those bounds, we attempt to add value through sector and industry allocations.

In the focused strategies, we only add a new stock to the portfolio when selling an existing holding. Stocks that are ranked in the top 20% by the TC Model are considered buy candidates. Our portfolio managers conduct qualitative analysis on a reduced list of buy candidates to determine which stocks are most suitable for the portfolio. Their qualitative research focuses on factors like the industry positioning of a company’s products and services, how the company is being managed considering the current economic environment, its overall risk profile and its contribution to diversification within the portfolio.

When an existing portfolio holding has a TC Model ranking that falls below the median, it is considered a sell candidate. Prior to selling a position, our portfolio managers conduct a similar qualitative review as on the buy side. Once it is determined to sell a portfolio holding, the position is sold in its entirety and replaced with the company that the portfolio manager views as most suitable.