Chase Investment Counsel investment Strategies: From Large Cap, to Balanced, to Mid-Cap and All-Cap

Buck Klintworth and Peter Tuz discussed the main investment strategies used by Chase Investment Counsel at its 47^th annual client conference held via Zoom on Nov. 18, 2020.

Buck Klintworth:

Our large cap strategy is our flagship product.  It is the strategy that has existed the longest.  For this strategy, we look to buy stocks with market capitalizations of $5 billion or greater.  Sometimes, you will  see more stocks in the portfolio at the lower end of that market cap range, but as of the end of October 2020, 40% of the portfolio was made up of stocks with market caps of $100 billion or more.  Large cap stocks tend to be less volatile than mid cap or small cap stocks, so the large cap strategy is usually the best fit for a client who has a lower risk tolerance for the equity portion of their portfolio.

Chase Investment Counsel has had a mid-cap strategy started at the request of a client about 25 years ago.  The client liked how we managed their large cap portfolio and asked if we would try a mid-cap assignment for them.  We have found that our process can be applied to stocks of any size. Because the market cap range for the mid-cap goes from $1 billion to $20 billion, there is usually some overlap between the large-cap holdings and our mid- cap holdings.  Nearly 60% of the holdings in the mid-cap portfolio now have a market cap above $10 billion. That’s somewhat due to strength of larger stocks versus smaller ones so far this year.  Mid-cap stocks are more volatile than large cap stocks but have offered higher returns in the past, so the strategy is a better fit for investors who are willing to trade-off somewhat higher risk for potentially higher return.

Many clients have a risk tolerance that lies between the mid-cap or large-cap portfolios. This where our all-cap strategy might fit best. In this strategy, $1 billion is still the low end of stocks we buy, but there is more flexibility to move up or down in size as we see what is working the best.  At the end of 2019, the all-cap portfolio had just over ½ of the portfolio in stocks that were held in only the large cap strategy.  The rest was just about evenly divided between stocks held in just the mid cap, and stocks held in both the large cap and mid cap.  By October 2020, the all-cap portfolio make up changed dramatically.  The percentage of mid-cap stocks held in all-cap accounts had fallen from 21% to 6%, and the percentage of large-cap stocks had grown from 52% to 68%.  Bigger stocks have generally done better this year, and we respond accordingly.  This changes. There will come a time when smaller stocks outperform. When that happens, you’ll see the mid cap stocks become a larger part of the portfolio.

Peter Tuz discussed Chase Investment Counsel’s two balanced strategies.

We have realized that many investors can’t be 100% in equities, so we have had balanced accounts for a long time as well.  Balanced simply means that in addition to stocks, an account would hold cash and other fixed income investments. The amount of which depends on their risk tolerance, need for income and whether they had significant expenditures planned in the next 2-3 years.  “With markets this volatile,” Mr. Tuz said, “if you know you’re going to have college tuition to pay in a year or two, it should be in cash or bonds and not in stocks.”

Chase Investment Counsel offers two balanced strategies, one with growth stocks combined with cash and bonds and the other with higher-yielding income stocks combined with cash and bonds. This reflects the need many clients now have for income beyond what typical bonds now pay.  Stocks in the growth & income portfolio typically have dividend yields of 2.5%-3.0% and sometimes preferred stocks with yields of 4.0%-5.0% are used if the need for income is there.

Click play below to listen into their discussion.