Independent research, transparency, personalized service.
Our Philosophy
We offer a rare brand of investment counsel to our clients by combining independent research with personalized service. As a result, our clients gain the advantage of complete transparency of their assets and direct access to the decision makers within Covenant.
We are driven by an unwavering commitment to service excellence, integrity, honesty and confidentiality. And as a fiduciary, we always exercise prudence, diligence and the highest standard of care within all client relationships.
Equity Investment Principles
Covenant adheres to a thematic growth investment style seeking growth at a reasonable price (GARP). We embrace the concept of investing with "the wind at our back" believing it is easier to be a successful investor by first identifying trends and then selecting leading companies likely to be beneficiaries of those emerging trends.
The cornerstone of our research effort is thorough fundamental analysis coupled with the use of technical analysis for timing decisions. Tax efficiency is an important aspect of our investment style leading to the pursuit of stocks our clients can own for an extended period of time. Our turnover rate is typically less than thirty percent per year.
Risk Management
The ability to absorb risk varies widely among investors, depending on their age, experience and financial circumstances. Prevailing market and economic conditions are also important factors. Your level of risk tolerance is carefully evaluated before we establish your wealth management plan. After taking the time to gain this perspective, we are well qualified to make knowledgeable asset allocation decisions on your behalf.
Our asset management experience has taught us that the best way to reduce risk is to diversify your assets. In fact, by lowering your exposure to loss from any one market sector, diversification can boost total return in certain economic environments. At Covenant, we specialize in allocating assets among cash, fixed income, equity, REIT and commodities markets.
Establishing an optimal asset allocation requires thorough examination of your income requirements, liquidity needs, lifestyle goals and risk tolerance. Your objectives are continually evaluated to determine the need for asset allocation modifications.
Investment Strategies
Equity Growth
We specialize in wealth enhancement through tax-efficient, growth-oriented investment management. Client portfolios are generally kept fully invested, resulting in low turnover of portfolio holdings and reduced exposure to capital gains liabilities. Our equity growth approach involves identification and purchase of companies with superior growth characteristics, with the intention of holding them for many years and selling only when fundamental prospects turn negative.
A cornerstone of our philosophy is our focus on buying dominant companies in the fastest-growing industries. Generally, we seek companies that increase revenues and earnings by double-digit growth rates year after year. Such businesses ordinarily prosper under a variety of economic conditions, and most are corporate leaders in profitability. These companies tend to be both proponents and beneficiaries of the long-term themes that are shaping global economies. In today’s world, these companies are typically found within the technology, healthcare, industrial and consumer sectors.
Companies that meet our criteria for growth typically share the following traits:
-
These companies are often the low-cost suppliers or pricing leaders in their industries. Their dominance often derives from powerful franchises, proprietary technology, a unique marketing approach or other sustainable competitive advantages.
-
Prospective earnings should grow at an annualized rate of 15% or more. Steady new product developments, rapid sales expansion and a relative immunity to economic cycles characterize these companies.
-
Financial attributes include low debt, high returns on equity and capital, and an ability to finance growth internally.
-
Ideally, management should have an ownership stake in a growth company. This fosters a commitment to shareholder interests and creates an entrepreneurial culture that will attract skilled employees. Communication of the corporate vision for growth to both shareholders and employees is essential.
Dividend Appreciation
Our dividend appreciation model is constructed to meet the needs of clients seeking market-like returns with lower risk, as measured by the volatility of returns, with a higher portion of the total return coming via dividends. The dividend yield of this model is typically 50% higher than the S&P 500, and the companies within this model tend to increase their dividends at a 50% faster rate than average.
As we search for the right securities for equity income, earnings growth remains essential as most companies maintain a policy whereby their dividend rate is relatively consistent in proportion to their earnings. Diversification across economic sectors is also an important criterion.
Companies that meet our criteria for dividend appreciation typically share the following traits:
-
These companies generally command leading market shares within their industry, based upon a long history of brand awareness, low cost structure or other competitive advantages.
-
We look for historic and prospective annual earnings growth of 5% or more, coupled with a policy of declaring dividends at a rate based upon earnings (payout ratio), not to exceed 60%.
-
Financial attributes include low debt ratios, high returns on equity and capital, and an ability to finance growth without frequently tapping capital markets.
-
Experienced leadership and a commitment to shareholder interests is vital.
International Equity
Covenant generally invests a portion of our clients’ equity portfolios in foreign stocks. In order to structure these portfolios with our targeted risk/reward characteristics, we typically use no-load mutual funds or exchange traded funds (ETFs) for diversification.
We select funds with long-term track records of attractive relative performance, high ratings by independent fund rating agencies, and relatively low internal expense ratios. Market conditions and global trends will guide us in establishing the overall balance between emerging and developed markets. In addition, relative valuation and growth expectations are considered when determining which regions and market capitalizations we believe should be emphasized.
Fixed Income
Our fixed income investment philosophy adheres to a disciplined approach that emphasizes strong total returns and a steady income stream generated by what we believe to be high-quality holdings. Our process is intended to provide consistent returns while helping to reduce investment risks. Our strategy emphasizes high credit quality, a focus on intermediate-term securities, yield curve management through a laddered portfolio, and low portfolio turnover.