RMB Capital Management

Overview

The foundation of our dividend growth strategy is that stock prices follow earnings growth over time, and that mature companies with a consistent history of raising dividend payments enhance the risk/return profile of the portfolio.  We believe we can add value over the long term by purchasing shares of quality businesses in growing industries that are trading below our estimate of fair value.

Performance Objectives

  • Outperform the Russell 3000 Index over a full market cycle, while assuming less risk
  • Identify individual companies that are expected to grow operating earnings at double-digit rates   
  • Minimize company-specific risks

Investment Approach

  • Conduct fundamental, bottom-up research
  • Search for quality growth companies across the market-cap spectrum that have consistently raised their dividends
  • Focus on companies that consistently exhibit faster growth than peers and present the opportunity for valuation expansion

Portfolio Profile

  • Concentrated portfolio of high-conviction ideas (20-30 positions)
  • Low turnover (typically two- to three-year holding period)
  • Average position size generally 4%

Philosophy

With an eye on mature, large-cap growth stocks, we focus on researching and investing in a diverse group of domestic industries. Through our bottom-up, fundamental approach, the goal is to identify growth companies trading at attractive valuation levels.

Our dividend growth strategy is distinguished by three key tenets.

Quality Approach

  • Strong and sustainable business models
  • Competitive advantages and barriers to entry with unique differentiation
  • Superior management teams with history of prudent capital allocation and ability to adapt

Stock Prices Follow Earnings Growth Over Time

  • Emphasis on secular growth opportunities vs. cyclical
  • Focus on organic growth – deconstruct growth to identify potential inflection points
  • Strong returns on invested capital and high levels of free cash generation
  • Proven ability and desire to consistently grow dividend payments over time

Concentrated Portfolio

  • Reflects our deep conviction in holdings
  • Assures our clients’ assets are focused in our best ideas while still being adequately diversified
  • Enables us to conduct rigorous, fundamental research on every holding

Process

We have a disciplined and rigorous approach.

Idea Generation

  • Utilize qualitative and quantitative screening criteria to narrow the universe
  • Analyze a combination of fundamental and thematic research
  • Maintain a watch list of potential companies

Fundamental Analysis

  • Build detailed financial models to provide deep understanding of a company’s cash flow and earnings power, in addition to its growth potential
  • Examine competitive positioning and industry dynamics (pricing power, stable free cash flow, barriers to entry)
  • Develop rigorous investment thesis that is distinctly differentiated from consensus thinking
  • Employ a devil’s advocate process, which ensures thorough debate

Valuation Criteria

  • Examine both upside and downside potential through scenario analysis
  • Seek investment returns above the level of risk inherent in the security – risk/reward profile of 2:1 or higher
  • Monitor risk/reward profiles relative to other holdings and to new ideas

Reasons We Buy

  • A strong and sustainable business model with attractive long-term growth prospects
  • High returns on invested capital with demonstrated sustainability
  • Attractive balance sheet with limited leverage
  • Ability to consistently grow faster than peers
  • Opportunity exists for valuation expansion
  • A risk/reward ratio of 2:1 or higher

Reasons We Sell

  • Determination that key piece of investment thesis is no longer valid
  • Deteriorating company fundamentals and/or a change in the long-term business outlook develops
  • Current valuation discounts all the potential upside for the next two years
  • A better use of capital presents itself in the form of a more attractive risk/reward profile and/or greater absolute upside potential