Strategy
HOW WE ASSEMBLE A PORTFOLIO
The Crabtree Fund is a growth portfolio of multi-capitalization equities. The stock selection and rebalancing process was originally developed in 2000 to serve the portfolio management of a small-cap growth mutual fund. Technology, multi-cap and large-cap variants have also been created and tested for efficacy. The first quantitative screen was developed to automate the process of looking for companies that had the characteristics we desired: cash flow, stable or growing market share and a history of management execution. A set of five search parameters was chosen that we feel capture those key characteristics.
It’s important to understand that the quantitative “screen” or “model” that forms the basis of The Crabtree Fund was not discovered via traditional parameter- and factor-based back-testing. Rather, it was originally created to search for equities that had the fundamental characteristics we desired. Once a pool of qualifying equities was found, further research could be performed to ascertain the alpha-generating capabilities of such candidates.
But as it turned out, if one considered the entire pool of qualifying equities as a portfolio, the performance of such a portfolio was consistent in not only generating alpha over periods of time measured in quarters or years, but also with superior risk-adjusted returns versus relevant benchmarks. And these essential parameters have only undergone one change since 2002.