Heritage Capital offers three Individual Stock Programs:
- The "Top Stocks" Institutional Strategy - Download the Fact Sheet (Updated through 12/31/14)
- The Insider Buying Strategy - Download the Fact Sheet (Updated through 12/31/14)
- The Hedged Equity Strategy - Download the Fact Sheet (Updated through 12/31/14)
Offered At: TD Ameritrade, Fidelity and Trust Company of America
I. The Top Stocks Institutional Strategy
The Institutional Strategy is an actively managed, discretionary, growth oriented, individual equity program designed to focus on the top rated stocks (in terms of earnings strength and company/industry performance as defined by the rating system employed by Heritage) within each market sector. Instead of focusing on the biggest companies in a sector - as the S&P 500 does - the Institutional Strategy strives to own the top rated stocks within each S&P sector.
Identifying the Top Rated Stocks
The Institutional Strategy employs a disciplined stock selection method designed to identify the top rated stocks within each industry. Each week, every stock in our universe, which is made up of ~1600 of the largest, most liquid stocks traded in the U.S., is ranked in terms of earnings strength and company performance. In addition, the system ranks 10 market sectors, 20 industry groups, and 109 sub-industry groups for performance and momentum. Our system for determining a company’s earnings strength and performance includes hundreds of indicators and includes (but is not limited to) the analysis of:
- Earnings Estimates
- Revisions to Earnings Estimates and Momentum of Revisions
- Measures for Earnings Surprises
- Upside Potential for Earnings Estimates
- The Momentum of Company and Industry Performance
In short, only those stocks with the strongest performance and earnings strength (as defined by our rating systems) “make it” into our Top Stocks universe.
Risk Management Strategies Built In
As anyone who has experienced a down market can readily attest, man does not live by stock selection alone. Recall that the average growth fund (as defined by the Lipper Large Cap Growth Fund Index) lost -64% during the bear market period of 3/31/00 – 3/31/03. Therefore, the Institutional program employs a long-term risk management strategy.
While there are never any guarantees in investing, Heritages’s risk management strategies are designed to first identify, and then stay “in tune” with the market’s “big-picture” cycles. This means that when our major market models are in a bullish mode (indicating risk of a severe market decline is low) we will maintain a fully-invested strategy focusing on the top stocks in each market sector.
However, each position in the Institutional Strategy has its own individual sell point. If any holding breaks down on a technical basis, it is sold without question. Thus, exposure to market risk will automatically decline when the market enters a negative market environment.
In addition, the Institutional Strategy incorporates a “top down” oriented hedging strategy based on our Market Environment Model. In short, when the Environment Model is negative, we will use available cash to purchase inverse and/or leveraged inverse ETFs (securities designed to increase in value when the underlying index falls) in order to hedge long positions in the portfolio.
The Institutional Strategy has been traded live since 6/1/2005
Minimum Account Size: $50,000
Number of Holdings: Approximately 30
Holdings reviewed weekly
II. The Insider Buying Strategy
Heritage’s “Insider Buying Strategy” is an aggressive growth, concentrated equity portfolio designed to focus on companies that, according to our indicators, are experiencing heavy corporate insider buying. The strategy focuses on those stocks where the corporate executives who know the company best are buying - and buying heavily.
Studies show that heavy corporate insider buying is generally correlated with executive confidence in the company’s current operations and/or a positive outlook for future operations. The Insider Buying Strategy attempts to capitalize on heavy insider buying while maintaining Heritage’s equity selection criteria and risk managed approach.
The strategy is easy to summarize: Instead of owning the biggest companies in each sector - as the S&P 500 Index does - our plan is to own the companies in which the corporate insiders are buying - and buying heavily.
Every week the computers scour the available research on insider buying and selling to locate the list of stocks with heavy insider buying signals. From there, our team painstakingly reviews each of these stocks on an individual basis. We evaluate the companies from a technical perspective, review their earnings strength using our proprietary rating system, and finally, we make sure each stock checks out using our long-term fundamental model.
The Insider Buying Strategy employs a disciplined sell strategy. The approach is straightforward as we have no tolerance whatsoever for stocks that are not technically healthy. Thus, whenever one of our holdings moves into a downtrend or breaks important support -- we sell the stock, no questions asked. While it may sound simplistic, this "bottom up" (stock-by-stock) approach to managing risk causes the portfolio to automatically reduce exposure to market risk during severe market declines.
In addition, the Insider Buying Strategy incorporates a “top down” oriented hedging strategy based on our Market Environment Model. In short, when the Environment Model is negative, we will use available cash to purchase inverse and/or leveraged inverse ETFs (securities designed to increase in value when the underlying index falls) in order to hedge long positions in the portfolio.
Minimum Account Size: $25,000
Number of Holdings: 10
Holdings reviewed daily
III. The Hedged Equity Strategy
The Hedged Equity Strategy is an actively managed, growth oriented program designed for stock market investors. The program utilizes a unique approach to diversification by employing multiple-managers, multiple-strategies, and multiple-methodologies in order to create a single, “all-weather” stock portfolio.
The Hedged Equity program incorporates two “offensive” equity portfolio strategies designed to “make hay while the sun shines” in positive market environments and two “defensive” strategies intended to manage risk and preserve capital during negative market cycles.
Two Stock Programs Provide Style Diversification
One of the key benefits to the Hedged Equity Strategy is the use of diversification. The use of two distinctly different stock picking strategies provides the portfolio with “style diversification” in terms of equity selection.
For example, the “Top Stocks” Institutional strategy employs a disciplined stock selection method designed to identify the top rated stocks in each major stock market sector in terms of both earnings strength and both company and industry performance.
Next, the Insider Buying strategy is an “alpha add” approach that focuses on small-cap stocks where corporate executives who know their companies best are buying their firm’s stock – and buying heavily. Studies show that heavy corporate insider buying is generally correlated with executive confidence in the company’s current operations and/or a positive outlook for future operations.
Two Active Risk Management Strategies Provide Portfolio Hedging
The Hedged Equity Strategy also incorporates two active risk management programs intended to act as hedging vehicles for the overall program: The Active Risk Manager and the Tactical Swing Trading Strategy.
The Active Risk Manager is designed to keep accounts positions on the right side of the stock markets with the short- and intermediate-term market cycles. The approach manages risk on a daily basis, utilizes multiple managers, multiple strategies and adapts rapidly to changing market environments.
The Tactical Swing Trading Strategy is designed to identify intermediate-term opportunities for the statistical tendency for price to revert to prior levels—commonly referred to as “mean reversion.”
The End Result: An “All Weather” Approach
Putting all the pieces together in a single portfolio creates the Hedged Equity Strategy. The program is a multi-manager, multi-strategy, multi-methodology approach designed to be able to adapt to changing market environments.
There are never any guarantees in investing. However, the Hedged Equity utilizes four investment strategies that together strive to provide equity-like returns in bull market environments and to preserve capital during those nasty “bear” market declines.
Minimum Account Size: $100,000
Number of Holdings: 45
Number of Strategies Used: 5
Holdings reviewed daily
Questions? Contact Heritage or give us a call at (630) 250-4700
Please see disclosures regarding the risks of investing as well as additional disclosure regarding the risks of using leveraged and inverse ETFs in our Disclosure page