Investment Selection Process
The process of building Bassi portfolios involves three major selection steps, plus a fourth step to ensure that portfolios continue to meet all necessary criteria. These steps include: (1) identify publicly-traded companies that screen positively based on their employee development investments, (2) exclude companies that screen positively if they do not meet all additional criteria, (3) select and weight a specific set of portfolio holdings, (4) monitor all portfolios for ongoing adherence to the criteria established above. The Investment Committee meets weekly, using the process below to ensure a disciplined approach for actively managing portfolio performance.
Step 1: Positive Screening
The only stocks that are eligible for inclusion in our portfolios are those that meet our requirements for minimum level of investment and commitment to employee training and development. These requirements are based on Bassi Investments’ rigorous quantitative research demonstrating that firms making larger investments in their employees subsequently perform better on the stock market than comparable firms making smaller investments. Data and other information on training and development investments and practices are compiled from multiple sources, with annual direct requests from Bassi Investments to companies’ investor relations departments representing the most common method of data acquisition.
Specific items considered in this step are the following:
- Investments in employee training and development
- This quantitative measure is the primary variable considered in the screen
- Qualitative elements of training and development practices
- Consistent commitment over time to employee training and development (examines change in this investment over time)
- Specific elements of organization’s training and development practices
- Commitment to maintaining organization’s human capital
- Considers layoff practices
Step 2: Exclusionary Screening
Companies that pass the positive screening process are eligible to be added to Bassi’s recommended portfolios only after meeting additional exclusionary criteria. In this step, our Investment Committee uses a disciplined approach to examine the following factors:
- Industry-wide issues:
- Economic cycle timeliness
- Event-specific timeliness
- Industry practices
- Legal and regulatory, company-specific issues brought forward by:
- Shareholders
- The government
- A regulatory body
- Corporate Governance problems:
- Unease over aggressive accounting / revenue recognition practices, etc.
- Financial and long-term viability issues:
- Positive cash flows
- Underlying growth potential
- Good balance sheet
- Solid industry positioning
- Security Issuance (Debt or Equity)
- Continuity Issues:
- Management turnover
- Reliability of spending numbers
- Merger & acquisitions
Step 3: Portfolio Selection and Weighting
Stocks that clear all screens in Steps 1 and 2 are then considered eligible for inclusion in Bassi’s recommended portfolios. Each portfolio is completely overhauled once each year by our Investment Committee, primarily in order to incorporate new annual information on organizations’ training and development investment.
Each portfolio has different specific standards for inclusion, and these standards are applied by the Investment Committee to determine the final composition and weighting of each portfolio.
Standards for selection and weighting for the various portfolios include some or all of the following:
- Level of investment in employee training and development
- Based on the research model, organizations with a greater commitment to training and development (measured quantitatively) are given higher target weights in some portfolios
- Based on the research model, some portfolios only include organizations that pass a more stringent version of the Step 1 positive screen
- Industry/sector distribution
- Some portfolios take total industry/sector weights into account, and seek to avoid allowing industry weights to exceed a given multiple of their share of the S&P 500 index
- Some portfolios seek to match the weights of total industry/sector holdings their share of the S&P 500 index, adding industry SPDR investments when necessary
Step 4: Continued Portfolio Monitoring
Portfolios are rebalanced approximately three times per year in order to ensure that weights remain as close as possible to the target weights identified through the model, while still maintaining as much tax efficiency as possible.
Also, portfolio holdings are monitored continually throughout the year to ensure that all stocks continue to meet all criteria described in steps 1 and 2. In cases when a stock’s situation on one of the criteria changes materially, the Investment Committee determines whether the stock should remain or be removed from the portfolio(s).