Investment Philosophy

Patriot employs what it deems a comparatively conservative investment program across both equity and fixed income asset classes. We utilize broad diversification and typically invest only in high quality companies. The firm’s independent research process utilizes both quantitative and qualitative inputs derived from third parties and internally generated. Patriot utilizes sound risk management practices and constantly monitors positions.

Equity Management

Investment Strategy

The U.S. equity market is fairly efficient over a full economic cycle. However, institutional biases typically create large and profitable opportunities in sectors and individual equity securities throughout each phase of an economic cycle. As equity investors, we believe return on invested capital (ROIC) is the primary determinate of change in a stock’s valuation. As a result, we spend considerable time analyzing changes in operating metrics that determine ROIC such as sales, margins, return on equity, and capital structure.

Investment Process

Buy Criteria:

  • Stable or accelerating fundamental momentum companies defined by high sales, margins, and incremental ROIC
  • High and/or stable backlog companies trading at significant discounts to their revenue and earnings growth rates
  • Sustainable earnings surprises and positive earnings revisions
  • No “story stocks” or “fliers”: Investing is about fundamentals, valuation, and risk control

Sell Criteria:
Selling is typically catalyst driven. Specific catalysts include (but are not limited to):

  • Earnings reports below expectations
  • Utilization of questionable accounting practices to inflate reported earnings
  • Accelerating R&D spend and/or high capital expenditures paired with peaking margins
  • Deteriorating credit worthiness as reflected by widening credit spreads
  • Regulatory inquiries

Selling may also occur if a position trades well in excess of historical valuation measures

Portfolio Construction and Risk Management

Model Portfolio Construction

  • Broad portfolio diversification: 30-40 positions on average
  • Top 10 positions usually represent less than 50% of model
  • Average position size is approximately 3%
  • Sector exposure of +/- 5% versus benchmark triggers a review
  • Tracking error typically held to 5-8% range

Traditional Risk Management Elements

  • Price Declines: 15% decline versus cost basis triggers a review for potential sale
  • Position Sizing: Highest conviction positions may be given up to 2 x weight over time
  • Liquidity Monitoring: Constant review and efforts are made to minimize liquidity constraints within the portfolio.

Real-Time Risk Management Systems

  • Real-time portfolio pricing and performance attribution
  • Patriot research maintained in a centralized data repository

Fixed Income Management

Investment Strategy

Fixed income investments are primarily made to meet client cash flow needs. Therefore, as “buy and hold” investors in this asset class, credit quality is our primary fundamental concern. Although we perform an initial credit screen on all fixed income securities based upon the rating given by credit rating agencies, we rely heavily on our internal credit analysis process.

Investment Process

  • Analyze the credit quality of the issuer
  • Determine position of the bond within the capital structure: senior vs. subordinated and/or secured vs. unsecured
  • Assess absolute yield and relative value vs. comparable bonds
  • Examine any unique or special provisions of the bond issue such as call provisions
  • Determine suitability of term to maturity for client accounts
  • Assess the trading liquidity of the bond

Portfolio Construction and Risk Management

Taxable Fixed Income

  • Typically purchase only investment grade (IG) issues
  • Internal credit review performed prior to initial purchase
  • Issuer concentration > 10% triggers review
  • Sector concentration > 25% triggers review
  • Rating agency downgrade to below IG triggers new internal credit review
  • Patriot research maintained in centralized data repository

Tax Exempt Fixed Income

  • Typically purchase only investment grade (IG) issues
  • Internal credit review performed prior to initial purchase
  • Issuer concentration > 10% triggers review
  • Verification and analysis of extraordinary redemption provisions
  • Typically do not purchase airport or MUD bonds
  • Rating agency downgrades monitored on a quarterly basis
  • Patriot research maintained in centralized data repository

Investment Personnel

The Patriot investment team consists of several investment professionals lead by the firm’s Chief Investment Officer (CIO) who has over 20 years of investment management experience ranging from fundamental credit and equity research to managing growth oriented public equity portfolios as well as significant long/short equity portfolios. The CIO is supported by dedicated investment professionals with strong academic backgrounds, professional certifications, and relevant industry experience. The primary responsibilities of the CIO and investment personnel are to implement, improve, and maintain a highly disciplined investment process for equity and fixed income management, regularly review the strategic asset allocation and tactical composition of the investment models and develop recommendations to modify the models as appropriate, and provide guidance for client specific legacy investments. By establishing this focused structure, Patriot has dedicated substantial resources to the investment management process.


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