Trimark US Companies Fund

Using a fully bottom-up approach to analyzing companies, the Trimark US Companies Fund's portfolio management team seeks to generate alpha over the long term by identifying high-quality US-based businesses that are attractively priced relative to their prospective earnings, cash flow and valuation record.

The team believes that long-term investment success is achieved through developing original insights and ideas for investments. In order to develop original insights and ideas, thorough, independent research, including meticulous financial statement analysis and meeting with the company management teams. This enables the team to take advantage of markets inefficiencies, where a security's price does not reflect our view of a company's intrinsic value.

In conducting a comprehensive company analysis, the assessment will consist of:

* Thorough evaluation of profitability and competitiveness in the industry in which the company operates
* Conducting interviews with company management, as well as competitors, suppliers and customers, to ensure management is focused on the growth of the business and increasing shareholder value
* Financial and valuation analysis to identify discrepancies between the teams' assessment of a company's intrinsic value and its market value

In association with the factors mentioned above, risk management and down-side protection are fundamental to the investment process and philosophy of the Trimark Investment team. 

Investment Process

The Trimark Investment team believes a disciplined and consistent investment process is paramount to success through market cycles. Central to the investment philosophy is the adherence to a long-term view, typically three to five years or longer, which is based on the premise that good business strategy usually takes time to implement and be fully realized.  The focus is on companies that are industry leaders, have strong growth potential and stable financial structures. Great emphasis is placed on the quality of the company's management team and its commitment to securing a competitive advantage for its products and services.
 
Company Management Interviews
A critical part of the investment process is meeting with company management. Conducting a comprehensive analysis on the company allows the portfolio management team to thoroughly understand the business, including its strengths and weaknesses. Importantly, it is through this analysis that they are able to identify important questions to ask management. These acute questions, which can only arise through an in-depth analysis of the company, often shed light on “hidden gems”, or “hidden flaws”, in the business that support or reject the thesis for investment. The portfolio management team feels that this is the crux of their competitive advantage.
In addition to meeting with management and employees of the company, the portfolio management team also engages in discussions with key suppliers, customers of the company, competitors and in certain instances, independent industry experts. These meetings frequently result in further insights into the company of interest, which at times can be more candid than meetings with the company itself.

Fundamental Company Analysis

The portfolio management team builds a detailed financial model of each company, which allows them to identify growth investments at value prices.
The portfolio management team will compare the historical data to those of companies outside of the industry to evaluate the profitability and competitiveness of the industry itself. The team will perform the same, comprehensive analysis on competitor companies of the investment candidate. This comparative analysis enables the team to gain further insight into the relative strength, sustainability and profitability of the business of the company.  After the historic analysis is complete the team will examine the current fiscal situation of the company. Balance sheets, income statements and the cash flow statement are closely scrutinized, with particular emphasis on cash flow and valuation measures including price-to-earnings, price-to-book value, price-to-sales, price-to-cash flow, enterprise value-to-earnings before interest, taxes, depreciation, and amortization (EBITDA), net asset value, break-up value, and free cash flow. Current metrics are compared to historic levels of the firm and its competitors.

The Trimark US Comapnies portfolio construction process begins with thorough fundamental and valuation analysis. Positions are typically built slowly to ensure they can be added with minimal trading impact on the stock price.  Initial positions are approximately 1 per cent. The team will then monitor the stock price and continue to assess their investment decision.  The team will continue to build the position until a two to three per cent portfolio weighting is established.  If the current valuation is not attractive enough to justify investment, the stock will be monitored on a daily basis. When monitoring positions, the portfolio management team will wait for an opportunity to invest at an attractive price.

Importantly, the portfolio management team's intimate knowledge of the company and its intrinsic value enables them to act quickly when temporary factors cause the market to misprice a stock. If the company's fundamentals have not changed and the portfolio management team's estimate of its intrinsic value remains.

The portfolio management team builds a focused portfolio of approximately 25 to 35 companies that are diversified across several industries. Sector diversification is a by-product of the stock selection process. Geographic diversification is also a by-product of stock selection. In constructing the portfolio, the portfolio management team is cognizant of the business risk to which each company is exposed and other potential risks that may be caused by common links between different businesses in the Fund.

The portfolio weight for each holding in the Fund is determined by the level of conviction the portfolio management team has for the particular business. The average weight of each holding is approximately 3%. If the portfolio management team has a high level of conviction for a company and it continues to look attractive positions can climb as high as 6 or 7% of the Fund.

The investment team's strict valuation discipline is the primary risk control mechanism. Risk is managed primarily on an individual stock basis, by investing in companies that are undervalued.  They believe that the best way to reduce portfolio risk is to thoroughly understand the business of the companies in which they invest. It is through a combination of rigorous fundamental, bottom-up analysis of each company, extensive interviews with company management, and valuation analysis that this thorough understanding is achieved. This approach allows the team to estimate the intrinsic value of the company with a high degree of confidence.

By consistently investing in stocks that are undervalued relative to the intrinsic value of the companies, downside risk to the securities and therefore the portfolio is minimized. Assessing this downside risk is a critical part of the investment process.

Buy Discipline
After thorough fundamental and valuation analysis, a candidate for investment will be purchased if the market price is attractive relative to the intrinsic value of the company. An investment is made when its price is less than the current or estimated future intrinsic value of the business as determined by anticipated earnings and cash flow growth over the next three to five years.  Companies may be attractively valued because they have fallen out of favour, or if their strategy and future potential is not being fully recognized by the marketplace.

Sell Discipline
Holdings are sold if the original thesis for buying the company has changed due to a fundamental shift in management, strategy or a company's competitive environment, if a more attractive opportunity becomes available or when the full value of the investment has been realized.
 
There are three main elements to the manager's sell discipline. First, he will replace a relatively less attractive idea with a better idea in order to improve the overall quality and growth prospects of the portfolio. Second, a holding will be sold if the original thesis is no longer valid due to a fundamental negative change in the company's management, fundamentals, strategy or competitive environment. Third, a stock may be sold if its price fully reflects value or becomes over-valued.

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