GSIF utilizes a modified Core-Satellite Approach to investing known internally as “Core-Plus,” investing in a combination of sector-specific ETFs and individual companies in the S&P 500. Rebalanced four times per year, the portfolio is intended to be sector-neutral and mirrors the sector weightings of the S&P 500 Index. The portfolio seeks to deliver alpha driven by active positions based on fundamental proprietary research.
The portfolio sources individual company investments through a value investment strategy. Positions are added to the portfolio through a formal pitch process. Each of the six sector teams is responsible for sourcing, researching and presenting four investment ideas to the Portfolio Managers per annum. Research and investment ideas focus on identifying undervalued companies, and making use of relative and intrinsic valuation techniques.
Potential additions to the portfolio are analyzed by the Risk Management team, in order to determine weightings within the portfolio. This portfolio optimization focuses on managing the portfolio’s tracking error volatility to the S&P 500. The team utilizes projections paired with historical correlations to determine the weightings for active and passive names that will maximize return and minimize tracking error for the portfolio as a whole.
GSIF follows a formalized process for idea generation, research and pitching that has been developed over the fund’s history and is continually evolving. Despite being sector-neutral to the S&P 500, the idea-generation process begins by attempting to identify the industry within each sector that is relatively undervalued and provides the greatest opportunity for both multiple expansion and growth. The industry of focus is chosen after this research is presented to the Portfolio Managers and the Fund.
After identifying the most attractive industry within the sector, the sector team focuses on identifying undervalued names in that specific industry. An emphasis is put on identifying why the stock is currently undervalued, as well as the catalysts that will cause it to appreciate and expand to its historical multiple or intrinsic values. This process leads to the creation of 2-3 “one-pager” research reports that are sent to the Portfolio Managers during each round of pitches. The Portfolio Managers identify the most attractive opportunity, and the sector then completes a more in-depth research and valuation of the stock. The process culminates with a presentation to the Fund and Portfolio Managers, who ultimately make the investment decisions.