The model portfolio is constructed from the securities that are ranked in the top 10% of our quantitative model at the time of purchase and viewed favorably by our financial analysts. When a holding, regardless of absolute gain or loss, drops in quantitative ranking below the 40th percentile, it becomes a candidate for replacement. These buy and sell thresholds have been in place since the inception of our strategies and are not arbitrary. Our research indicates that the maximum return to our clients, after commissions and execution costs, is achieved at these thresholds.
"Take a simple idea and take it seriously."
Identifying Favorable Holdings
Given the behavioral anomalies and inefficiencies we believe in, our financial analysts apply traditional, but focused, skills as they choose and monitor portfolio investments. Instead of creating better forecasts of corporate profitability (relative to Wall Street sell-side or other buy-side analysts), Jackson Creek's analysts strive to profit from changing expectations, 'unexpected' earnings surprises, systematic forecasting errors made by Wall Street analysts, and underreaction to current information. In particular, we focus on earnings persistence and the core drivers of earnings surprises and estimate revisions...with the goal of identifying companies that possess attractive economic characteristics, return drivers, and accounting methods. Additionally, our analysts leverage their awareness of behavioral finance (and the many biases and heuristics that drive investor decisions) to profit from investors' under- and over-reactions to data, including information associated with positive events predicted by Jackson Creek's quantitative models.
Understandable & Predictable Weights
Throughout the history of our composite, our allocation to economic sectors has been very stable. Our process adds alpha through stock selection, rather than sector "bets" against the benchmark. Thus, we have established a target number of positions for each of the sectors included in our universe. Our target for each sector is designed to create a weight that is in proportion to the weighting of the equivalent benchmark sector. This methodology has resulted in relatively stable and highly predictable sector exposures over time.
All client portfolios are managed versus a model portfolio that reflects the buy and sell decisions of our investment team. The professionals on our Trading Desk have discretion to place orders in the location and manner that maximizes the speed at which we obtain positions, while minimizing total execution costs.