Our Investment Process

Investment Strategy for Core Equity

Our investment strategy for our core equity holdings is to take advantage of the capital appreciation potential presented by companies whose stock prices have temporarily declined and which are attractively priced relative to our proprietary calculation of their intrinsic value. This strategy is integrated into our investment decision-making. We independently research viable investment opportunities utilizing quantitative and qualitative criteria and financial modeling we have developed over the years. Additionally, we recognize and consider market history as an informative tool and endeavor to capitalize on the behavioral elements that influence the marketplace. Taking a long-term investment focus, we measure the risk and reward of buying and holding certain securities by applying the information we have gleaned from our quantitative tools and independent research.

Portfolio Construction for Core Equity

Financial and Competitive Strength. Our stock selection process is well defined, grounded in academic theory, and proven in practice. As a core manager with a value orientation, we screen for financially strong companies that have relatively low price-to-earnings, price-to-book and/or price-to-sales multiples, or comparatively high dividend or cash flow yields. We seek companies that have generated sustained profitability, that have a history of reinvesting profits for sustained growth or of distributing profits to shareholders, and that occupy a secure, competitive position in their industries.

Intrinsic Value. The heart of the Willis Investment Counsel stock valuation methodology is our determination of a stock’s intrinsic value. We begin to determine the intrinsic value of a stock after calculating the present value of future cash flows generated by a reasonable estimate of sustainable corporate operations. We then integrate myriad other quantitative and qualitative metrics calculating intrinsic value.

Risk Management. We believe that the timing of stock purchases is a critical element of risk management for a portfolio. Based on this belief, we employ tools that allow us to capitalize on over-reaction to short-term influences, negative events, and perceptions that have an adverse impact on stock price. We subscribe to the principle that most companies’ stock prices revert to the mean over time and that there is less risk of post-investment price erosion if entry points are established using proprietary tools.

Diversification. Our clients’ equity portfolios generally consist of 30 to 50 separate stocks, with company concentrations generally limited to 2-3% of the aggregate portfolio value. In the interest of diversification, we are ever mindful of economic sector, industry, and company concentration.

Investment Strategy for Fixed Income

We believe most clients choose fixed income investments (bonds) for risk reduction, income generation, or regulatory compliance purposes. Accordingly, we generally believe it incongruous with those purposes to utilize fixed income strategies that carry significant risk. We believe that, over long periods of time, 90% of bond returns come from the income stream (i.e., yield), and intermediate maturity bonds (five- to ten-year maturities) usually provide approximately the same level of return as longer maturity (and riskier) bonds. Therefore, Willis Investment Counsel focuses on investment grade or near-investment grade corporate bonds with maturities generally less than 15 years. We also believe that strategies based on interest rate and yield curve slope forecasts are rather unreliable, so we minimize the use of such high risk strategies.

Fixed Income Goal and Objectives

Our fixed income portfolio goal is relatively simple and straightforward: To provide returns for our clients that exceed what they might otherwise achieve with core fixed income strategies. We use the Barclays Capital Aggregate Index as a benchmark against which we measure our performance.

The objectives that we pursue toward achievement of our fixed income goal include:

Generating an average yield-to-maturity that exceeds the Barclays Aggregate average
Maintaining an average duration that is similar to the Barclays Aggregate duration
Maintaining a significantly higher corporate bond allocation than that of the Barclays Aggregate
Avoiding realized losses in our bond portfolios