SELECT Strategy: Quality Companies Designed to Navigate Turbulent Markets

December 21, 2018

January 2019

SELECT Strategy: Quality Companies Designed to Navigate Turbulent Markets

By Rich Erwin, Senior Analyst/Portfolio Manager and David Yepez, Senior Investment Analyst/Portfolio Manager

A primary goal of Exencial’s SELECT equity research is to build a list of companies that are leaders in their respective industries. Our in-depth analysis of factors like revenue growth, profit margins, future prospects and industry influence allows us to identify companies that are driving forces in the market. More often than not, these companies also have histories of superior executive leadership to help them navigate both smooth and choppy waters. It makes sense such organizations want to solidify their reputations by maintaining strong environmental, social and governance (ESG) standards – and they typically do.

Why do we bring this up? In times of market uncertainty and volatility, as evidenced in the fourth quarter of 20181, it is prudent to invest in companies with proven track records and solid reputations. While it’s impossible to get selections right 100 percent of the time, we consistently strive to find companies with superior qualities and strong fundamentals. Our research indicates organizations with preeminent market share, leading-edge products and services, strong leadership and healthy financial statements tend to be sound investments in the long term.

For example, companies invested in the cloud services space frequently fit this criteria. Well-respected names like Amazon (AMZN)2, Microsoft (MSFT)3 and Alphabet (GOOGL)4 anticipated the massive shift to cloud computing and subsequently satisfied consumer demand by proactively building data centers and software. Likewise, consumer discretionary companies like Nike (NKE)5 and Starbucks (SBUX)6 have consistently anticipated consumer demand and designed products and services to fill it.

Overall, these types of companies retain trust by demonstrating strength and insight to withstand and thrive during ambivalent times. This behavior engenders investor optimism. Over the years, we have felt more confident during turbulent market periods when we can point to a continuing track record of sustainability in the companies we recommend. If they do trip up and make a significant wrong turn, it very well may be time to remove them from our portfolio. However, if they continue their course even during times of market volatility, it is sensible to embrace them and stay patient. We’ve come to expect top-quality companies to have an edge on competitors during challenging times and thus provide investors with downside protection.

Our goal at Exencial is to create a quality-based and long-term focused investment approach. That’s why our SELECT strategy is designed to endure volatile times by investing in companies that continually demonstrate sustainable sources of revenue growth. Though we don’t know what the market will bring in 2019, we believe investing in companies that have proven themselves over the years will increase the likelihood of positive outcomes.


1. Fortune – The U.S. stock market is officially in a correction. And financial stocks are now in a bear market
2. Yahoo! Finance – Amazon.com, Inc. (AMZN)
3. Yahoo! Finance – Microsoft Corporation (MSFT)
4. Yahoo! Finance – Alphabet Inc. (GOOGL)
5. Yahoo! Finance – NIKE, Inc. (NKE)
6. Yahoo! Finance – Starbucks Corporation (SBUX)

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