Putting Value Into Value Investing
Meritage Portfolio Management, a Kansas City-based firm that manages $1.5 billion, is an equities-focused investment boutique based on finding value.
“For the last 20 years we have been engaged in designing, structuring, improving, and executing our value-centric decision-making process,” Mark Eveans, president and chief investment officer at Meritage Portfolio Management, told Markets Media. “We manage three value-driven strategies on the equity side utilizing this process, and the decision-making process we employ is a key edge in enabling that success.”
Valuation underpins all of its strategies. “They’re all driven on value principles,” said Eveans. “We are process fanatics. We have a highly developed and repeatable way in which we make investment decisions.”
Simply put, Meritage looks for companies that are substantially priced below what it believes they are worth and it has developed methodologies to determine that. “It is our belief that consistent performance success is dependent on a very comprehensive, multifactor, repeatable investment process,” said Eveans. “We have both of those things going for us, and that drives about $1.5 billion in assets under management currently.”
In addition to valuation, Meritage emphasizes yield (i.e., dividends), and fundamentals. The yield-focused strategy has historically generated returns of between 5.2% and 7.1%.
“Dividends are a good indicator of management’s confidence in the earnings potential of the company,” said Eveans. “They also provide an important source of total return and lower overall volatility. We only invest in companies that pay a dividend.”
As for fundamentals, Meritage looks for stability and fundamental catalysts that could five meaningful price appreciations in the next 12 to 24 months. Typical fundamentals include management changes, restructurings, or new product introduction.
Eveans began his career as an analyst at Continental Illinois, where he eventually became chairman of the stock selection committee and lead portfolio manager. After that, he joined some friends from an independent firm in Kansas City, which was the predecessor to Meritage, where he was in charge of the institutional side of the equity business. In 1992, he and three other partners established what is now Meritage Portfolio Management.
“When we started out we had only one pure equity account, some balanced funds, and a couple of large bond funds that we continued from the old firm, and that gave us a starting amount of assets to manage, for which we were very grateful,” said Eveans.
While institutional in its decision-making, Meritage has historically delivered its strategies in separately-managed account form to private or “private-like” clients.
“About 60% of our business is private in one fashion or another, either IRA Rollovers or taxable accounts, family partnerships, and in some cases large corporate accounts,” said Eveans. “About 40% of it is more traditional institutional opportunities, including everything from pension and profit sharing plans to foundations, endowments, and self-insurance plans.”
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