Building, Monitoring and Rebalancing Sionna’s Portfolios
Portfolio construction and rebalancing is an important discipline in seeking long-term, value-added returns. We focus on understanding the risk profiles of the individual companies and industries in which we invest. That knowledge helps us determine the appropriate level of exposure they should represent in our various mandates.
Sionna’s relative value method is particularly effective in concentrated equity markets because it neutralizes sector skews. That means we can remain diversified and participate in most sectors by choosing the stock with the best value, even if a sector is overvalued.
This approach results in portfolios with less volatile risk profiles, and is critical to generating downside protection and value-added returns for our clients.
- Tends to lag in strong, frothy and speculative markets, but should be expected to preserve capital better during weak or declining markets
- Is well-suited to those clients that want a smoother ride from their investments
Some clients prefer a benchmark-agnostic approach to our stock selection. With them in mind, Sionna also manages focused investment strategies:
- More concentrated portfolios of approximately 25 stocks
- Individual companies meet our quality and valuation criteria without reference to individual sector weights
- Will likely perform with greater short-term volatility, but seek to generate strong absolute long-term returns
Sionna executes its trades in small increments, typically amounting to weights of 0.2%. We are price-sensitive and build up to a full position size accordingly. As value investors, we’re often early. This trading discipline allows us to average down in those situations.
We use the same incremental approach when exiting a name. As a stock approaches intrinsic value, and depending on its risk profile, we reduce our exposure to it – once again in increments of 0.2%. Since stock markets have historically tended to trade at a premium to intrinsic value, this allows us to reduce our weighting in a name but still participate in the stock’s upside.
Re-balancing to Optimize the Portfolio
Over time, stock prices move and the weight of an individual stock may change within a portfolio. We have metrics that alert us to weighting shifts so we can re-examine the position size and make decisions accordingly. The overall objective is to always optimize the portfolio by holding the right stocks in the right weight.