Investment Process

Equity Portfolio Management

Over the long run, companies that generate above average growth in earnings and /or cash flow will be rewarded with superior gains in the price of their common shares.

Style

MCM has a bottom up, stock selection style. This is not to suggest that top down, economic analysis is unimportant. Our top down analysis, conducted at the asset allocation level, identifies the current economic position within the business cycle. This is important in establishing the impact of the business cycle on earnings expectations for sectors and industries, and the individual companies that contribute to those industries.

Research

Equity research is a shared responsibility among all members of our equity investment team. Although we do subscribe to the research of several external boutiques, and utilize the insight of top street analysts, the bulk of our research, approximately 70%, is generated internally.

While data on large cap companies is readily available, small and mid cap companies must be researched individually. Most of these companies are "under-analyzed" and have attracted less investor attention than they deserve. Information about these companies is derived from personal interviews with management and often provides crucial input into the fundamental analysis discipline within our security selection process.

The equity team meets with over 150 companies each year. MCM will not invest in any small or mid cap company without first visiting the management team.

Security Selection Process

On a monthly basis, we track the financial performance of over 800 publicly listed companies. We then apply various valuation techniques to the securities of each of these companies to determine their relative value. The screening process we employ has been developed by, and is proprietary to MCM. It is as follows:

1. Quantitative
The quantitative screening discipline filters a large number of stocks by historical standards. It is used to study the historic financial performance of our securities universe.

2. Technical
The discipline of technical analysis is utilized as an indicator of relative value as well as a timing check on purchase and sale transactions. It examines a long history of stock price movements to establish a measure of relative value based on current market information.

3. Fundamental
Fundamental security analysis is forward-looking. It incorporates pro forma quantitative and qualitative information into the decision making process.

In each of the three analytical disciplines, all stocks (small, mid and large cap) are rated in quintiles from 1 to 5. Securities that are rated in the top two quintiles of the Fundamental discipline and at least one other disciplines are confirmed as candidates that flow through to our Ideas list. Security holdings that are rated in the bottom two quintiles of the Fundamental discipline will be reviewed to determine whether investment merits are still intact. Any security not meeting this criteria will be sold.

The Ideas list will typically consist of approximately 100 securities that meet our investment criteria. A further, more detailed fundamental valuation of these securities identifies the very best investment opportunities. These candidates are then integrated with the top down sector & industry analysis to arrive at a model portfolio for the particular investment mandate under review.