The CHOICE portfolios are designed to help clients better control and maximize the benefits of equity ownership.
Investors have different goals and risk profiles. While the portfolio cannot offer an equity portfolio suitable for all investors, there are six options that may meet most investment objectives. These managed portfolios are offered as separately managed accounts by Sterling Capital Management, a division of BB&T Corporation. The minimum investment for each account is at least $100,000, and investment is available to both retail and institutional clients.
CHOICE Special Opportunities Portfolio
The Special Opportunities Portfolio is designed for moderately aggressive investors seeking to maximize pre-tax capital appreciation. This is a multi-cap, multi-style portfolio that emphasizes stock picking from all areas of the public equity markets. Sterling Capital Management is sensitive to tax considerations, but those cannot be the primary investment consideration. Turnover historically has been less than 50%, although there can be no assurance that will remain constant in the future.
Portfolio holdings are likely to be a combination of younger "growth" companies and well-known names they believe to be attractively valued. The overall yield has traditionally been less than 1.0%. This portfolio is evaluated primarily against the Russell 3000 Index to reflect the combination of large-, mid-, and small-cap stocks that can define the portfolio.
Although the portfolio’s historical performance has been superior to that of the Russell 3000 Index, it is notable that volatility (as measured by “beta”) nevertheless has been below the Russell 3000 Index since the portfolio’s inception (January 1, 2001).
CHOICE Equity Income Portfolio
If you appreciate the value of a growing stream of income over time, you may find the Equity Income Portfolio appealing. Only stocks that pay a dividend exceeding the market rate and that have increased that dividend three consecutive years or six of the last ten are considered candidates for Equity Income. The result is a portfolio that should be more conservative than our Leaders and Special Opportunities portfolios, with a beta that is usually less than 2/3 of the market. Dividends have comprised about 40% of the S&P’s total return over the last 75 years, and changes in the tax law have made dividend income even more attractive for recipients.
Stock selection is equally as important as dividend history in building this portfolio. Turnover typically has been less than 35%, although there can be no assurance that will remain constant in the future. The performance of this portfolio is measured against the Russell 1000 Value primarily and the S&P 500 secondarily. The portfolio may be less diversified by industry group than others, because the universe of dividend-paying securities tends to be concentrated in certain sectors, but most sectors usually are represented.
CHOICE Global Leaders Portfolio
Simply stated, the philosophy behind the CHOICE Global Leaders portfolio is that global companies which have established themselves as #1 in their respective markets, tend to stay #1 in their markets. Size usually translates to cost advantages in production, marketing, and R&D expenditures that can be re-invested back into the business, making such advantages sustainable. Not insignificantly, industry leaders tend to be well managed, since it is highly unlikely a company becomes its industry’s best via pure luck. Over time, they believe stock of such proven-superior companies thus tend to out-perform stock market averages.
It is expected most of the holdings within the Global Leaders portfolio will be household names, so-called “blue-chip” companies. They believe a company’s historical track record is the single best indicator of future financial success, therefore essentially by definition their qualitative criteria should identify companies that already have enjoyed great success. Depending upon market conditions and specific situations, they retain the flexibility to sprinkle in international or medium-sized companies that they believe fit a common-sense definition of industry leadership. In so doing, Sterling Capital Management believes they can distinguish their portfolio from other “large-capitalization” investment alternatives, ideally with the result of boosting long term, after-tax returns, without taking on commensurate risk.
CHOICE Enhanced Equity Portfolio
The Enhanced Equity portfolio is designed for investors looking for less volatile investment returns, while managing investment risk through the use of covered calls to generate incremental cash flow. This portfolio includes stocks from the other three CHOICE portfolios with an increased emphasis on positive technical trends. The managers then search for attractive call premiums typically expiring in 60 to 180 days, almost exclusively “out-of-the-money” in order to leave room for targeted price appreciation.
In essence, this call-writing strategy involves a calculated series of low-return but high-probability investments. (A cash return up front is assured in exchange for an obligation to deliver the stock if the stock advances beyond the strike price.) The call-buyer(s) on the other side of the transactions are making a series of low-probability but potentially high-return investments on each stock. Over time, it is believed the option premiums they are able to generate may “enhance” the underlying equity performance, while reducing overall volatility. Turnover is likely to be higher, however, than the other CHOICE portfolios.
This portfolio‘s performance is benchmarked against the Chicago Board Options Exchange ("CBOE") Buy-Write Index ("BXM"), which assumes “at-the-money” call writing monthly against the S&P 500 Index. This alternative “cookie-cutter” approach has been adopted by competing investment vehicles to use the volatility reduction inherent in a covered call portfolio. They believe the focus on first selecting stocks and the opportunistic approach to call writing may increase the probability of positive returns.
The Enhanced Equity Portfolio carries a higher minimum investment of $250,000.
CHOICE Insight Portfolio
The philosophy behind the CHOICE Insight portfolio is that few investors should possess better insight into the future prospects of a company than its executives and Board members. Just as lower valuations generally tilt the odds of investing success in investors’ favor, so too does insider buying. That thesis has been validated by academic studies from researchers at Harvard, Yale, Stanford, and the University of Michigan, which independently found that corporate insiders have generally achieved higher risk-adjusted returns. A peer-reviewed article published in the November 2011 edition of the International Review of Economics and Finance further validated those findings, concluding that, “Insider actions have positive predictive power for future returns. Managers know more about their companies than any outsider, including Wall Street analysts and as such investors could benefit from observing the behavior of insiders. Results are statistically significant.”
CHOICE SMID Portfolio
The CHOICE SMID Opportunities portfolio seeks long-term capital appreciation by investing in a blend of underappreciated value stocks and emerging growth stocks. The portfolio primarily invests in companies with a market capitalization within the range of market capitalizations of constituents of the Russell 2500 Index, at the time of purchase.
We pursue attractive opportunities within small and medium-sized companies, without limiting ourselves by sector or investing style. From a universe of 3,000+ publicly traded companies, including ADRs, we build a concentrated portfolio that normally holds between 25 to 35 securities – blending relatively young growth stocks, characterized by above average revenue and earnings growth, with more-established value stocks that are out of favor for reasons we believe to be only temporary. This balanced approach enables us to act upon our investment team’s very best ideas and build a portfolio marked by diversification, high returns on capital and growth, with below average valuation and risk characteristics.
To learn more about CHOICE and how it may differ from your current investment strategies, please contact your local BB&T Scott & Stringfellow office today.
*Note: In addition to the advisory fees associated with this program, the fees and expenses of the underlying mutual funds and exchange-traded funds still apply. For a prospectus on any of the underlying mutual funds, including information on charges and expenses, contact your Financial Advisor. For a full description of fees and services, please refer to the firm's form ADV Disclosure Documents and Investment Advisory Agreement.