TOP DOWN ECONOMICS, BOTTOM UP FOCUS ON INVESTMENT VALUE

As diversified, total return investment advisors, we utilize a research process that encompasses many steps that may be categorized into three basic areas.

  1. Top Down Economics
    To determine the appropriate asset allocation, sectors and industries in which to invest, we begin with our outlook of broad, macroeconomic issues.
  2. Bottom Up Focus on Value
    We then select individual securities using bottom up analysis of each company in order to identify those selling below what we believe to be their intrinsic value. We employ a proprietary approach to diversified security selection based on three distinct security profiles: Classic Value, Persistent Earners and Distressed/Contrarian.
  3. Prioritizing Risk Management
    Finally, prior to investing, we create worst case and best case scenarios for evaluating the potential investment opportunity of each asset class. Across a continuum of four key scenarios – Normalized Recovery, Subpar Recovery, Stagflation, and Deflation – we determine the value proposition of each asset class. Although many investment management companies do not undertake this added step, we believe it provides a crucial risk management lens.

In market segments and asset classes where direct bond and stock investments are not justified based on market dynamics or other criteria, Altrius selectively employs ETFs, structured notes and other fund vehicles to add value and diversification. Occasionally, hedging may also be employed to reduce risk.

For a summary of top-down and bottom-up investing, see the sidebar to the right. For a detailed description, email us at info@altrius-capital.com and simply indicate that you are interested in learning more.

The difference between top-down and bottom-up investing

The spectrum of investment research has the top-down approach at one end and bottom-up at the other; they represent vastly different ways to look at stocks.

• Top-down research begins at the broadest level with macroeconomics, which deals with the performance, structure, trends and behavior of the economy as a whole and encompasses factors such as national income, rate of growth, gross domestic product, inflation and price levels.

The next step is analyzing the major U.S. stock indexes such as the S&P 500 and Nasdaq, comparing current ratios such as price-to-earnings, price-to-sales and dividend yields to past readings in order to help determine where the market is in relation to the long-term cycle.

Top-down research then studies different industrial sectors, determining which offer the most promising opportunities.

• Bottom-up investing, on the other hand, focuses on individual stocks. A thorough analysis of the company being considered includes topics such as products and services, sales and earnings figures, cash flow, financial stability, market share, and ownership of intellectual property. The numbers are then reviewed within the context of the industry, since each industry has its own ranges of valuation, profitability and earnings growth.