SKBA Investment Beliefs

A clear set of investments beliefs is required before committing capital to an investment style. SKBA's disciplined investment beliefs stem from market events, academic studies and historical perspectives that support that financial markets are often inefficient and present buyers with opportunities to buy when expectations are low and to sell when prices fully reflect the best outcomes or when better investment opportunities emerge.

Universe of Securities and Selection

Wall Street’s myopic views of company earnings expectations are extrapolated into the future by sell side analysts to derive price targets. This short-term approach often creates stock price fluctuations that are of much greater magnitude than the change in fundamentals justifies. By having a time horizon greater than Wall Street’s, SKBA adds value by concentrating on the long-term value of a business. SKBA's initial valuation metrics do not focus on "reported" earnings but instead on factors that are indicative of a company's underlying earning power and cash flows, as represented by its dividend policies, revenue stream and expected margins. This value-driven approach involves finding opportunities where one believes that the market has underestimated the future cash flows of a company. SKBA pioneered the use of Relative Dividend Yield (RDY) as one of our primary valuation screens for highlighting capital appreciation opportunities among dividend-paying companies. For companies that do not offer a dividend to investors, we begin by analyzing a stock's Relative Market Capitalization to its Revenues (RMCR) compared to its history.

Security Analysis

In conducting equity analysis, SKBA focuses on investment risk and not simply market risk. SKBA formulates an investment hypothesis by understanding the capital allocation process of a company, its future opportunities, and competitive positioning. Furthermore, SKBA analyzes financial statements, and conducts industry analysis to better understand the long-term structural changes that a company faces. Risk control is achieved through diversifying across economic sectors, purchasing securities below their expected values and monitoring hypotheses.