The following is an excerpt from our recently published Dynamic Growth Opportunities (DGO) portfolio update. For a copy of the full document, please contact us.
After spending nearly a decade within the captive walls of a $100B institution, our Dynamic Growth Opportunities (“DGO”) strategy emerged one year ago, formally launching on May 1, 2018. The end result is an equity strategy representing the full embodiment of institutional-grade best practices honed over a decade.
Now we have a discrete 12-month track record, see page seven. Given the importance of this anniversary, we decided to dedicate some time outlining the strategic rationale underpinning DGO in this quarterly update.
DGO’s objective is concise: deliver attractive risk-adjusted returns with an alpha target that provides upside both to our active equity peers and to our stated benchmark, the Russell 1000 Growth Index. In doing so, we maniacally focus on delivering meaningful differentiation to that which any investor can achieve with passively-managed ETFs available at single-digit basis point fees (side note plug, we fully embrace and deploy this concept in our asset allocation strategies outside of DGO). The mechanism for achieving differentiation is a robust investment process capable of discerning winners from losers in the never-ending battle of shareholder value creation, specifically among the publicly-traded universe of equities. But, idea generation that’s adaptable enough to keep pace with an increasingly dynamic market is just one facet. An arguably more critical skill is putting this all to work in a manner that harnesses the benefits of risk management. This is truly the rubber-meeting-road moment, as the amount of risk taken to achieve a given return is paramount to consistency.
Portfolio positions are like chess pieces, and the placement of every new piece onto the portfolio’s board incrementally impacts the overall probability for success, i.e. one’s opportunity to generate alpha in the context of its risk exposure. For DGO, this exercise entails a careful study of the precise roles tasked by each piece of our portfolio. We also face resource constraints, as we, unfortunately, are not afforded the luxury of a limitless army of rooks, knights, or bishops. Additionally, each DGO position carries mobility limitations with it. Instead of fixed parameters of lateral steps on an 8×8 board, the equity pieces of our portfolio come with predetermined sets of factor exposures, or features embedded into each stock, such as market cap, geographic revenue exposure, balance sheet leverage intensity, interest rate sensitivity, sector exposure, customer concentration, commodity input cost exposure, and end unit demand elasticity, just to name a few.