Equity Portfolio Management
Amit Khandwala
Wright Investors’ Service
Senior Vice President - International Equity Management
2
Investment Philosophy
We Believe:
 Investment behavior creates
opportunities that passive management
does not fully capture
 A systematic disciplined investment
process incorporating both quantitative
and qualitative elements identifies
companies with above average return
potential
3
Investment Process: A Disciplined Approach
Appropriate Style Universe
Quantitative Analysis
Capture Quality Ratings and Fundamental Ratios
Portfolio Optimization
Qualitative Analysis
Price Momentum / Earnings Outlook /Exogenous Factors
PORTFOLIO
Portfolio Monitoring
Re-optimization
Sell Disciplines
4
Quantitative Ranking Model
1. Proprietary Quality Rating
32 specific standards in four categories including
liquidity, financial strength, profitability and growth
2. Earned Return
A measure of return to investors
Factor
weightings
are
dynamic
and are
3. Valuation-Adjusted Earned Return
Historic R.O.I. adjusted for current valuation
4. Earnings Momentum
Combines Wright’s historic earnings measures and
projected consensus earnings
regularly
reviewed to
validate
predictive
strength.
5
Quality Rating
32 SCREENS OF THE WRIGHT QUALITY RATINGS
INVESTMENT
ACCEPTANCE
A:
B:
C:
D:
Outstanding
Excellent
Good
Fair
FINANCIAL
STRENGTH
Investment Quality Averages of All Stocks on "The Approved Wright Investment
List" - Minimum Listing Requirement Standards
MARKET VALUE
TOTAL
PUBLIC
All Shares
Outstanding
3 Year Average/
Current
% OF CAPITAL
Equity, Pfd Stock
& Long Term Debt
Capital &
Surplus
PROFIT RATE OF
EARNINGS
ON EQUITY CAPITAL
TIME-WEIGHTED
NORMAL
GROWTH
Excluding
Closely Held
3 Year Average/
Current
SHAREHOLDERS'
EQUITY
TOTAL
PROFITABILITY
& STABILITY
4 MAJOR
INVESTMENT
QUALITIES
32 Specific
Quality
Standards
Index of Minimum Standards for Listing on
The Approved Wright Investment List
WRIGHT
QUALITY
RATING
NORMAL
EARN
GROWTH
BASIC
TREND
TRADING
VOLUME
3 Year
Average/
Last 12 Months
PREFERRED
STOCK
% of Capital
Equity, Pfd Stock
& LT Debt
TIME-WTD
AVERAGE
& TREND
STABILITY
INDEX
EXCHANGE
MARKETS
3 Year
Average/
Current
LONG
TERM
DEBT
% of Capital
Equity, Pfd Stock
& LT Debt
CASH EARN RETURN
ON EQUITY
CASH EARN PER SHARE
GROWTH
TURNOVER
RATE
Adjusted
Annual Rate
Per Share (1)
CLOSELY
HELD
SHARES
% of Total
Number of
Funds,
Insurance Cos.
TOTAL
DEBT
% OF
CAPITAL
FIXED
LIQUIDITY
CHARGE
QUICK
COVERAGE
RATIO
RATIO
Cash &
Receivables/
Current Liabilities
Equity, Pfd Stock
& Long Term Debt
RETURN
ON
ASSETS
STABILITY
INDEX
EARNED
EQUITY
GROWTH
SHAREINSTITUHOLDERS
TIONAL
INVESTORS
PRE-TAX
INC TO
TOTAL
ASSETS
DIVIDEND OPERATING ASSETS
INC
GROWTH
GROWTH
GROWTH
Annual Rate
Per Share
Current Ratio
Current Assets/
Current Liabilities
INVESTMENT
ACCEPTANCE
Annual Rate
Per Share
SALES/REV
GROWTH
Annual Rate
Per Share
screened
FINANCIAL
STRENGTH
through a
+
proprietary
process to
assign a
+
GROWTH
=
INVESTMENT
QUALITY
INVESTMENT ACCEPTANCE + FINANCIAL STRENGTH
+ PROFITABILITY & STABILITY + GROWTH
= INVESTMENT QUALITY
names are
+
% of
TOTAL
CAPITAL
Adjusted Rate
RATING:
28,000
OPER INC OPERATING
to TOTAL
INCOME
PROFITABILITY
ASSETS
& STABILITY
Adjusted
Annual Rate (1)
Adjusted
Annual Rate
Per Share (2)
WORKING
CAPITAL
QUALITY
quality
rating
6
Quantitative Ranking Model
1. Proprietary Quality Rating
32 specific standards in four categories including
liquidity, financial strength, profitability and growth
2. Earned Return
A measure of return to investors
Factor
weightings
are
dynamic
and are
3. Valuation-Adjusted Earned Return
Historic R.O.I. adjusted for current valuation
4. Earnings Momentum
Combines Wright’s historic earnings measures and
projected consensus earnings
regularly
reviewed to
validate
predictive
strength.
7
Qualitative Analysis – Porter’s Five Forces
Threat of new entrants
Bargaining
power
of buyers
Rivalry among
existing firms
Availability of
substitutes
Bargaining
power
of
suppliers
8
Sector/Country Allocation
 Economic outlook
 Political environment
 Regulatory issues
9
Portfolio Construction
 Portfolio optimizer seeks to minimize benchmark
variance
 Portfolios are monitored constantly and rebalanced periodically
10
Summary
QUANTITATIVE
Quality Rankings
Ranking Model
Optimization
QUALITATIVE
Porter’s Five Forces
Market trends
Technical trends
Exogenous Factors
FINAL PORTFOLIO
PORTFOLIO
REVIEW
Sell Discipline
11
Questions