Philosophy & Process
Investment Philosophy
Our investment approach centers on identifying companies with durable cash flow, sustainable earnings growth, and attractive valuations relative to the market and their peers. We believe that these characteristics provide a strong foundation for long-term total returns.
Across our strategies, this discipline may emphasize dividend income, long-term earnings growth, or a combination of the two. In all cases, cash flow strength and valuation remain central to our decision-making.
We also recognize that market environments are rarely “normal” at any point in time, and believe that decision making based on heightened exuberance or pessimism puts long-term investment success at risk. Our process is designed to maintain emotional and investment discipline across market cycles, with a consistent focus on cash flow, quality, and the long term in all environments.
Risk management is integral to our process. A rigorous sell discipline and ongoing monitoring of portfolio risks are essential to protecting capital during periods of market volatility. Risk is assessed at both the individual security and overall portfolio level. Position sizes, sector exposures, liquidity characteristics, and valuations are continuously evaluated to ensure that portfolio construction remains consistent with each strategy’s objective and risk profile.
Portfolios are intentionally concentrated so that each investment can contribute meaningfully to overall results.
We actively manage strategies in pursuit of clearly defined objectives, rather than constructing portfolios to replicate a passive index.
Security Selection
The investment team conducts ongoing analysis of both current and prospective holdings with the goal of constructing portfolios that are well positioned to achieve each strategy’s stated investment objective within defined risk parameters.
BOTTOM UP
Security selection is driven primarily by company-specific research. We evaluate factors that influence valuation, dividend yield, and the outlook for earnings growth and capital appreciation, including:
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Cash flow durability and dividend sustainability (where applicable)
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Management quality
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Competitive positioning
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Revenue and margin trends
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Growth potential
TOP DOWN
While security selection is primarily bottom-up, we assess broader macroeconomic and structural developments that may influence portfolio positioning, including:
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Prevailing and projected economic conditions
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Political and regulatory developments
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Social and demographic shifts
Portfolio Construction
Each of Gilman Hill’s strategies is actively managed by a single, identifiable portfolio manager. Portfolios are typically diversified across 25-40 stocks in order to manage risk while still allowing each individual investment to have a meaningful impact on the overall portfolio return. Position sizes reflect the portfolio manager’s conviction in a security’s ability to generate sustainable income and/or long-term capital appreciation.
Portfolio guidelines are designed to support both diversification and risk management. Exposure to a single industry is limited to 25% of the portfolio, and individual position sizes are capped at 6%. Cash positions, which may be held both for liquidity management purposes and as a defensive measure, are typically less than 10%. Portfolio turnover for each strategy has historically averaged less than 25% annually.
Navigating Uncertainty
Markets have historically trended upward over time, although never in a straight line. We believe that a planned and disciplined approach to navigating inevitable periods of heightened uncertainty helps us and our clients to remain focused on long-term objectives and avoid emotionally driven decisions that can lead to permanent impairment of capital.
When transparency diminishes and emotions spike, we:
Understand the Disruption
We seek to identify the underlying drivers of uncertainty and separate temporary dislocation from permanent impairment risk.
Adhere to the Mandate and Investment Horizon
Periods of volatility are an inherent feature of investing and are best navigated through discipline, not prediction. In the face of uncertainty, we remain committed to implementing the agreed investment mandate and to maintaining a long-term perspective.
Focus on Most Probable Outcomes
It is not always possible to confidently predict short- or medium-term outcomes. During periods of significantly reduced visibility, we focus intentionally on the most probable outcomes based on market history and current conditions.
Reassess Business Durability
We reevaluate portfolio companies with particular emphasis on balance sheet strength, cash flow resilience, and dividend and earnings growth sustainability.
Identify and Capture Opportunities
Market dislocations can create opportunities to improve portfolio quality, enhance income streams, or increase long-term return potential. We seek to identify and capitalize on these opportunities.
Communicate Consistently
We believe that thoughtful, transparent, and ongoing communication is particularly important during periods of heightened uncertainty.
Repeat as Conditions Evolve
The process continues until markets normalize and uncertainty subsides.
Sell Discipline
A rigorous sell discipline is a key means of protecting clients from both the cost of holding a company whose investment potential is deteriorating in absolute terms and the opportunity cost of holding a position that is less attractive than available alternatives.
As such, we maintain a robust list of substitution candidates and are prepared to act when we see:
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a superior alternative
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a potential deterioration in dividend sustainability or earnings growth
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a meaningful shift in company fundamentals
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a valuation concern
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an emerging or excessive risk factor
Tax Sensitivity
We understand that taxes have real world implications for our clients. As a result, we integrate tax sensitivity into our investment decision-making for taxable accounts.
Tax considerations may influence:
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the types of securities in which we invest
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the underlying companies included in the portfolio
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the timing of purchases and sales
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the realization of gains or losses, whether proactively or in response to client-specific circumstances