Portfolio Construction
The Cypress investment process combines a top down macro approach to guide portfolio construction with fundamental, research driven stock selection. The founding principals at Cypress have worked together as a Portfolio Management team for more than 25 years and investment decisions are made collectively. The investment process begins with our macro outlook for the U.S. and global economy and financial markets.
We then evaluate the relative fundamentals and prospects on a sector basis, with the goal of identifying those industries and sectors with the best outlook. Our outlook is favorable when we identify positive long term trends, or even shorter term cyclical opportunities, in industries with attractive fundamentals. We conversely seek to avoid areas where we believe continued deterioration of fundamentals or adverse secular trends are not reflected in the market. Individual stock selection is thus focused, but not limited to, our favored sectors; as a result our portfolios may deviate significantly from market index weightings.
To reduce risk and to provide stability, each portfolio is typically diversified across 30 or more holdings. A diversified but strategically positioned portfolio is the foundation of the Cypress model, providing the sturdy platform needed for durable long term appreciation and expanding the opportunities to own names that may develop into significant long term winners.
INVESTMENT PROCESS CHART →
Stock Selection and Buy Sell Discipline
The Cypress equity universe starts with the 2,000 largest companies in the U.S. and also includes most of the largest global ADRs, MLPs, REITS, and ETFs. Individual stocks are then evaluated based on quantitative metrics (sales/earnings/cash flow/dividend and their relative growth prospects and valuation multiples), balance sheet strength, sustainable or improving operating margin, and qualitative assessments of management capability and shareholder friendliness.
The investment decisions are ultimately made by our founding principals drawing upon their two and a half decades of experience managing equity portfolios over a wide range of economic and market environments. Cypress applies the same investment discipline and process used in initial investments to actively monitor its portfolios and each individual holding. Stocks will typically be sold or weightings reduced when price exceeds full value or becomes expensive on a relative basis, when the fundamental outlook for the company or industry becomes less favorable or significantly increases the risk of the position, or to make room for a more attractive alternative. Individual weightings are limited to approximately 7% of the portfolio in order to manage risk and to protect outsized appreciation.
Individual weightings will also be adjusted on an ongoing basis to reflect changes in our macro outlook, relative sector attractiveness, and cyclical economic and market developments. Custom managed products include large cap core growth, growth and income, energy and natural resources, high yield equity, and fixed income.