Investment Philosophy

Cephus identifies itself as a "core" manager with a "GARP" (growth at a reasonable price) philosophy. We are typically responsible for the "core" or foundation of a client's liquid assets. As a "GARP" manager, we seek to own growth companies with reasonable valuations (growth and value). Our screening process is designed to identify high quality companies with solid balance sheets, above average growth, sound management, and strong potential for long-term appreciation. We pay careful attention to the valuations and earnings multiples of every company we own or consider for investment.

Our process begins with a "Top Down" assessment of macro-economic trends (inflation, interest rates, fiscal and monetary policy, trends in economic activity) in order to formulate a "Big Picture" view of the investing climate. Thematic perspectives are derived from the "Top Down" work, driving equity sector weightings. Individual security selection starts from the "Bottom Up," driven by multi-factor screening techniques. Our screening focuses on revenue and earnings growth, free cash flow and return-on-equity. We also monitor technical characteristics such as on-balance-volume, relative strength and money flow.

Core Holdings- are the anchor of the client's portfolio, representing the highest quality issues. These companies demonstrate superior management, profitability and growth characteristics. These are intended to be long-term holdings. Core holdings typically comprise 60-80% of the equity allocation. Mutual Funds and ETF's are also utilized for core equity exposure.

Opportunistic Holdings- represent a smaller portion of the portfolio and are attractively positioned for the short to intermediate term based on current fundamentals. We seek to exploit sector movements and near term themes with a shorter time frame than core holdings. Opportunistic holdings usually comprise 20-40% of the equity allocation.

Company Selection Criteria

• Competitive positioning
• Market share takers
• Innovative products/processes
• Secular trends
• Management skill
• Shareholder friendly
• Global mindset

• Market Capitalization >$1 Billion
• Historical 5 year annual earnings growth >10%
• Debt < 35% of Capitalization
• Expected 5 year annual earnings growth >10%
• Return on Invested Capital (ROE) >15%
• PEG (price earnings to growth) ratio < 1.5

1. If a stock meets our targeted valuation objective or when we believe another security offers significantly greater return potential.
2. When portfolio re-balancing is appropriate due to the size of the individual holding or overall sector exposure.
3. When the fundamental and thematic reasons for purchase are no longer valid (i.e. deteriorating fundamentals, emergence of a strong competitor, negative earnings surprises).
4. Considerable relative under-performance over a 30-day period will initiate a review of the reason for investment, and may trigger a sell decision.

Cephus equity holdings do not always meet desired qualitative and quantitative criteria. The criteria are a framework for analysis.