Vision Capital focuses upon building a portfolio of 35 to 40 firms that are expected to provide annual double-digit real earnings growth, over the next three-to-five year period. The portfolio is built from the bottom-up, based on the fundamental strength of the underlying companies, and the expected risk/reward profile each stock provides. Team members are aware of the relative weightings of stocks in the index, but investment decisions are not driven by relative comparisons to the benchmark.
Portfolios are fully invested with a residual cash position of 5% or less. An initial position size is 2.5% of the total portfolio and then positions are allowed to fluctuate with the market. Market appreciation in an individual position is limited to 5.0% of the total portfolio at market or the securities weighting in the benchmark, whichever is greater. Sector weights are maintained at +/- 10% of the index weight.
The portfolio is monitored continually to ensure that the original investment thesis is still appropriate for each stock, and that the risk/reward profile is as anticipated.
Risk Control
Vision Capital’s investment discipline leads to the creation of a well-diversified portfolio of individual stocks.
In addition to traditional portfolio metrics, Vision also monitors the various types of growth companies within the portfolio. Internally, we utilize a “track team” analogy to describe firms:
“Marathon Runners” or stable growth companies are stocks that we expect to provide long-term and relatively steady growth. These firms typically comprise 30-60% of the portfolio.
“Sprinters” or high growth companies are stocks that offer sizeable growth opportunities, but must either significantly grow their intrinsic value in order to justify valuations, or be sold prior to becoming over-valued. These holdings typically represent 30-60% of the portfolio.
“Hurdlers” or recovering growth companies are growth stocks that have recently experienced difficulty, but are in the process of picking themselves up and are expected to regain their growth footing. These companies are typically 0-30% of the portfolio.
We focus on companies from this perspective because our experience has shown maintaining an array of different types of holdings helps mitigate volatility and enhance long-term performance.