Equities
We utilize a top-down investment approach at Reyes Capital. We start by ascertaining the state of the global and domestic economy. The next step down is to look at the various sectors of the economy. Standard & Poor’s breaks the U.S. economy down into 10 sectors. We identify those that should perform well in the current economic environment, and overweight these in our clients’ portfolios. The other sectors are given equal-weightings, under-weightings or are excluded altogether.
One more step down brings us to the industry level. For example, the financial sector contains 8 separate industries, including banks, insurance companies and real estate companies. We will identify those industries that should perform well going forward due to: low valuations relative to historical norms, competitive factors, or regulatory changes that have enhanced their ability to create positive earnings growth. Our individual stock selections will come from these industries.
At Reyes Capital we track 40-50 stocks on an ongoing basis. Approximately 20-25 of these are selected for each portfolio. This particular number of stocks is chosen for specific reasons. Many studies have shown that the benefit of diversifying with individual equities begins to decline after about 15 stocks. Conversely, portfolios of greater than 30 or 35 stocks spread across various sectors are so broadly diversified that their returns will simply track the overall market. Therefore a portfolio of 20-25 stocks represents a good balance that is easily monitored, and yet has the possibility of outperforming its respective benchmark.
The majority of stocks we use come from the list of top-ranked stocks as compiled by Standard & Poor's - their "Five Star" equities. Standard & Poor's is the pre-eminent independent equity research firm on Wall Street. A research organization exclusively, S&P has never provided investment banking services, but does provide unbiased analysis and advice on a wide range of investment products. S&P "Five Star" stocks have historically outperformed the S&P 500 index. Since their inception on 12/31/1986, “Five Star” stocks have gained an average of 15.3% versus 8.5% for the S&P 500 index, excluding dividends.
We take a dollar-cost-averaging (DCA) approach in building the equity portion of the portfolios. This entails investing a relatively small percentage of the assets into individual stocks at regular intervals over a period of time. This process takes from a few days or weeks up to six months or as long as a year. The amount of time depends entirely on the markets, and can be accelerated or decelerated as the environment changes.
Once the portfolio is built we monitor it very closely. Every security owned by each client is monitored every day. This is in stark contrast to the procedure at large investment management firms, where an individual client’s portfolio may be reviewed every few weeks or months, or as seldom as once or twice a year. It is this level of individual attention, coupled with high quality management, that sets Reyes Capital apart from our competitors.
