Premium Yield Equity

Our objective in managing the Premium Yield Equity portfolio is to deliver investment returns that exceed that of the S&P 500 by focusing on undervalued stocks with above-average dividend yields.  We seek long-term inflation protection by investing in stocks in the top 40% of the market ranked by dividend yield; companies that are capable of consistent dividend growth; and undervalued stocks with significant potential for capital appreciation during a full market cycle.

• Portfolio Benefits:  The portfolio offers a disciplined approach to participating in the US equity market by emphasizing both high-yielding and undervalued stocks.  Our specific management goal is to maintain a portfolio which yields 2-3 times the average yield of the S&P 500.  We also seek to overweight situations in which companies are likely to grow future dividend payments.   The high current yield combined with the recent 9-10% growth in earnings and dividends, combine to make it an attractive alternative to U.S. Treasuries.  Relative to the S&P 500, the portfolio's capture ratios indicate full participation in up markets and limited exposure in down markets.
  
  
• Investment Process: Our investment team targets its research on dividend paying companies that are temporarily undervalued by the marketplace.  Securities that are candidates for purchase have dividend yields in the highest two quintiles of a universe defined by market capitalizations exceeding $500 million.  In addition, special emphasis is given to stocks that have low expectations.  Here we seek stocks that are trading substantially below the highest price reached during the prior 12 to 18 months.  Companies whose stocks have fallen and are somewhat controversial provide the opportunity for capital appreciation as well as a degree of downside protection which mitigates risk. Our willingness to invest for a lengthy holding period allows us to exploit opportunities resulting from the market's frequent overreaction to short-term events.
  
  Our team of research specialists provides research conclusions regarding the attractiveness of each company's valuation as well as its capacity to deliver both dividend and earnings growth.  Companies that have expressed the desire to grow their future  dividend payout are analyzed for their capacity to do so.  At the same time, valuations must be attractive relative to peer companies and relative to the company's internal profit and growth characteristics.  All told, we arrive at a portfolio of stocks that offer the best combination of 1) current yield, 2) the prospect for growth in both dividends and earnings and 3) a compelling valuation.  We attempt to avoid situations where fundamentals are fully discounted or where our research indicates that a reduction or elimination of the dividend payment is likely.
  
  
• Portfolio Construction:  The portfolio is the result of a 'bottom-up' selection process which reflects several overarching portfolio yield and diversification considerations. It is constructed to offer diversification by economic sector and market capitalization.  No single position can be greater than 5% of the portfolio.  Economic sector weights are generally limited to no more than 5 percentage points above the sector weight of the S&P 500 or Russell 1000 Value index, which ever is larger.  All securities must be traded on a US exchange. 

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*5 year relative to the Russell MidCap Value Index
Statistics as of 9/30/14

Investment Team

Jeffrey D. Bilsky, MBA
Portfolio Analyst
10 years of experience

Stephen M. Elliker, MBA
Senior Portfolio Analyst
12 years of experience

Douglas W. Kugler, CFA
Senior Portfolio Manager
18 years of experience

Peter M. Schofield, CFA 
Senior Portfolio Manager
30 years of experience

Le Yu, MBA
Quantitative Analyst
5 years of experience