Investment Solutions

Building portfolios security by security

Every component of the wealth management process matters. Just as each client’s individual circumstances come into play in addressing issues of risk and return, there is more to investing than relegating a client’s funds to an arbitrary basket of stocks.

For over 25 years, we have embraced that belief by building investment portfolios, security by security.

A Passion to Be Better

We know not all investors can be better than average and no single strategy will outperform in all times. For some, this is reason enough to accept average; for us, this is the reason to wake up every day with a purpose.

Expect Your Firm’s Best Thinking

Customizing around individual client goals and objectives is essential. Tailoring a portfolio of individual stocks to each client is not. We cut our teeth managing investments for large institutions. Institutional clients expect their equity portfolio to be representative of the strategy that created the performance track record and to be a product of the firm’s best thinking. Our private clients should expect no less.

Four Tenets of our Philosophy

A systematic methodology of investing works best in today’s broad and complex market

Investors have an advantage when they can evaluate a broad universe of investment opportunities efficiently, consistently, and without emotion and biases.

Valuation is the primary determinant of risk and return

The risk of an investment has as much to do with the price paid as the underlying business. Return opportunities have more to do with specific company fundamentals than company size, investment style, geography, and macro analysis.

You can’t do the same things everyone else does and expect a better outcome

Investors have an advantage if they think long-term, resist chasing performance, have a distinctive process to identify and exploit market inefficiencies.

Sticking with an investment strategy through good and bad markets is not easy, but it is the right thing to do

Most investors know that market timing is futile, but in the midst of market turmoil, the temptation to reduce risk is compelling. More long-term wealth is destroyed by this than the decline itself.

Five Distinct Equity Strategies

Five independent equity strategies are accessible to our clients. Utilized individually or in combination, they provide equity diversification at multiple levels. Each strategy has a lead manager, team, and a distinct approach to determining what makes a stock attractive. They share a common process, relying on a systematic and repeatable approach to identify attractive stocks. They also share a value orientation in their security selection, driven by a preference for companies that generate strong free cash flow.

As a single source manager, Meritage brings a clear advantage to portfolio diversification. By understanding how each of the equity strategies complement each other, from broad characteristics, all the way down to the individual holdings, we can build the optimal strategy combinations for our clients.

A brief description of each strategy follows below:

Meritage Value Equity

  • This relative value strategy employs a bottom-up security selection process that is not constrained by company size or U.S. orientation, although the portfolio will typically have a large-cap, domestic composition. The objective is simple – own securities that are underpriced by the market for reasons that are misguided and temporary.
  • Our multi-variable approach to valuation expands the “value” universe beyond that used by many traditional value managers, enabling ownership of attractive investments not found in other value strategies.
  • The strategy is distinguished from many value strategies by our investment approach – a quantitative process that incorporates what a company is truly worth along with specific factors that have historically been predictive of future stock price outperformance. These factors reflect measures of valuation, business momentum, investor sentiment, and management IQ.

Meritage Growth Equity

  • This strategy takes an opportunistic approach to growth, avoiding strict and traditional parameters of what constitutes a “growth” stock. Holdings are large-cap, U.S. oriented (although the process looks for attractive candidates in all market caps and geographies) and exhibit strong growth in earnings and cash flow.
  • Because there are no preconceived biases regarding exposure to specific sectors or industries, the strategy may often own attractive investments which may be absent from other growth strategies. Sector exposure is controlled within broad ranges.
  • While many growth strategies are heavily momentum driven, we manage that risk by including valuation and cash flow metrics in our evaluation process. This discipline contributes to the strategy’s history of low volatility.

Meritage Yield-Focus Equity

  • This value-oriented, high-yield equity strategy takes a very simple approach to generating an attractive return – build in at least half of that expected return to come from cash distributions back to the shareholder (mostly from dividends), resulting in a reduced reliance on price appreciation.
  • This approach is designed to mitigate normal market risk due to the emphasis on cash distributions, over full market cycles. It pairs well with more traditional strategies (Value and Growth) as a diversifier, given its non-standard yield characteristics.
  • The search for attractive yield opportunities includes a broad array of equity types, including pass-through securities, as a means of both enhancing returns and reducing risk through diversification. It has more of an all-cap, global orientation, reflecting the attractive yield opportunities outside the U.S.

Meritage Small-Cap Value Equity

  • Small cap stocks provide diversification to currency exposure, geopolitical events, trade policy, and large-cap momentum driven markets.
  • Market inefficiencies and return opportunities are greater in small cap stocks.
  • This strategy was established in 2008, capitalizing on the firm’s conviction in quantitative methodologies to drive security selection. At the heart of the investment approach is a multi-factor ranking process which identifies investment candidates with unsustainably low valuations and strong or improving cash flow return on investment. A qualitative overlay focuses on risk control and assures that decisions are not fully automated. The strategy’s objective is to generate excess return over the Russell 2000 Value Index.

Meritage Small-Cap Growth Equity

  • This strategy was established in 2008, capitalizing on the firm’s conviction in quantitative methodologies to drive security selection.
  • The investment approach is quantitatively driven by the Meritage multi-factor ranking process which identifies attractive companies with reasonable valuations and above-average cash flow returns on invested capital. Earnings quality, investor sentiment, business momentum, capital efficiency and growth factors provide a collective assessment of upside opportunity based on historical correlations. The combination of these multiple perspectives results in a broad corroboration of appreciation opportunities in small-cap stocks.
  • Small cap stocks provide diversification to currency exposure, geopolitical events, trade policy, and large-cap momentum driven markets.
  • Market inefficiencies and return opportunities are greater in small cap stocks.

A Repeatable Process


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Balanced/Fixed Income Management

Most of our clients have an allocation to bonds as a measure of risk control and diversification. In spite of today’s low interest rate environment, our clients see the important role bonds play in providing a layer of safety to the portfolio.

We are risk-averse in our bond management. Purchases are limited to investment-grade rated bonds and the average maturity of our bond portfolios is typically in the intermediate range. We are opportunistic, taking advantage of temporary shifts in credit spreads, yield-curve slopes, and inflation expectations.

Tax considerations are always high on our clients’ priorities. Our use of taxable and tax-exempt bonds is driven by which provide the most attractive after-tax returns. Our clients appreciate owning individual fixed income securities, rather than bond funds, because they provide better visibility of how their bonds will perform, regardless of future interest rate changes.