Investment Process / Research
Wall Street Associates' investment process is driven foremost by fundamental, bottom-up stock selection, with portfolio risk managed through team-driven portfolio construction. Each portfolio across all of our product offerings is managed on a team basis, with individual manager responsibilities based on sector/industry specialty. Each portfolio manager has complete discretion and responsibility for purchase and sale decisions within his or her area of specialization. Purchase and sale decisions are made within the parameters of the firm's investment philosophy and process. Portfolios are consistently reviewed to ensure their suitability vs. investment criteria, portfolio strategy, and client guidelines.
Stock Selection
Stock selection is derived from an evaluation process whereby candidates must pass the firm's stringent investment criteria of extraordinary earnings growth, earnings surprise potential, fundamental strength, and management vision.
Idea Generation - Initial investment ideas are derived from the following resources:
- External data resources screened to uncover company and industry information
- A broad, external network of national and regional analysts and brokers specializing in micro, small and mid-cap growth companies
- Meetings with company management teams
- Industry conferences and company conference calls
Our external data sources include WONDA, Baseline, Reuters/Bridge, and Bloomberg. Our national network of analysts and brokers, cultivated over decades and specializing in micro, small and mid cap growth companies, provides data as well as company assessments with which to compare against our own internally generated conclusions.
Focused Research - Investment team members examine each investment opportunity's prospects for growth, as well as its current financial position, to determine a risk/reward profile detailing internal fundamentals, competitive positioning relative to industry peers, and the probability for earnings surprise. This sweeping analysis includes industry trends, financial statement analysis, comparative analyses (sector, industry, and peer), management assessments, identification of catalysts, and valuations. Our research process also includes internally developed revenue models (customized based on industry) and internally generated growth estimates used both to exploit voids in small and mid-cap coverage and to capitalize on inaccurate market assumptions. These analyses form the foundation of our investment opinions.
Additionally, getting to know companies early in their development is crucial to everything we do. We meet in-house with over 500 management teams each year. In addition to our fundamental research, we conduct a qualitative, value-added analysis of a company's management team and growth strategy by meeting with management to judge, firsthand, their vision for growth and how it translates into shareholder wealth. We also participate in industry conferences and quarterly company conference calls covering earnings reports and significant developments while constantly maintaining an ongoing dialogue with management team members at key companies. This art, relative to its quantitative counterpart, is a refined skill developed over years of experience within our investment style. Over the years, our Portfolio Managers have met with thousands of the market's most and least successful management teams, giving us an extensive framework with which to base our decisions.
Confirmation / Stock Selection - As a final step in our research process, investment team members actively seek second and third opinions from our established network of analysts, brokers, and company management teams. Finding both bullish and bearish perspectives is critical to the final assessment of our research results.
Portfolio Construction
In our fully invested portfolios, existing holdings must continuously earn their place or be replaced by a better investment candidate. While individual company research is the basis of security selection, the investment team works within the boundaries of our product mandates and portfolio guidelines, as well as any client-imposed restrictions. Individual holdings are monitored on a daily basis, with detailed portfolio construction reviews occurring weekly. Our portfolio construction process includes:
Investment Strategy Group - Formally bringing together the firm's investment, risk management, and client service/marketing professionals generally each month, Investment Strategy Group members analyze portfolio attribution, assess overall risk (intended and unintended), evaluate the market environment, and manage sector, industry, and security exposure within client portfolios. Key inputs in the formulation of our strategy first include our internal, bottom-up research, followed by views from "the street's" top strategists and economists, and then include a review of statistical measures from our risk management area. This multi-faceted approach has proven successful in keeping portfolios focused on the top growing sectors of the economy.
The group also fosters the on-going development of our investment process. Quantitative inputs from our risk management area serve as tools for the evaluation of prior investment decisions. Reflection on our investment successes and setbacks is a vital tool, both in the ongoing development of our process and in the constant movement toward keeping us at the forefront of our investment style.
Risk Management: - Wall Street Associates takes a disciplined and multi-dimensional approach toward investment risk management. General risk controls applied toward portfolio construction include the following: monitoring of portfolio tracking error, beta and marginal contribution to active risk vs. applicable benchmark; monitoring of capitalization, industry and sector weights, cash, and information ratio; monitoring of portfolio holdings which are limited to a maximum of 3% portfolio weighting at purchase; client investment policy.
WSA's dedicated risk manager also conducts in-depth analysis of portfolio risk to help maximize return within each client's account guidelines. BARRA's Aegis Small Cap Model™ and Vestek's trade-based portfolio attribution system enhance our risk management process. A broad understanding of the sources of risk has become a crucial element in the enhancement of our clients' returns.