Ranger International Equity Strategy

 

SUMMARY OF THE STRATEGY

Ranger’s disciplined bottom-up, fundamental research process seeks to identify stable, quality international companies (excluding U.S. based companies) when they can be purchased at attractive valuations. The International equity strategy invests in developed and developing countries resulting in a portfolio of approximately 30-50 names. Ideas are generated through bottom-up, fundamental company research with country, industry and market capitalization allocations a residual of the research effort.

 

Objective:

Ranger’s Strategy seeks to preserve and grow capital by investing in stable, high quality international companies when they can be purchased at attractive valuations.

Philosophy: A Multifaceted Approach

Ranger believes that a multi-faceted approach is more versatile and effective than other investment philosophies that place undue emphasis on a single variable, such as growth rate or valuation. The Ranger investment team believes that high quality companies build substantial value for shareholders over the long term, but that markets typically focus on short-term events such as earnings surprises, news of marginal significance and macroeconomic developments. By taking a long-term view, Ranger believes the strategy has a sustainable advantage over many other market participants.

Process: Focus on Quality, Financial Strength and Attractive Valuation

Quality: The strategy incorporates both quantitative and qualitative factors in the search for quality companies. Quantitative factors include efficiency measures such as capital utilization, profitability and earnings consistency. Qualitative factors include management experience, shareholder orientation, industry position, capital allocation and growth potential.

Financial Strength: The firm evaluates a company’s financial strength based on its ability to meet its financial needs and obligations, such as general operating expenses, capital expenditures, working capital demands, research expense, debt payments, and dividends. Tests for financial stability typically include analysis of capital spending trends, working capital management, debt ratios, interest coverage ratios and dividend coverage.

Attractive Valuation: Later in the analysis, the focus shifts to companies that the team determines offer timely and attractive valuation opportunities. The investment team values companies on the basis of quantitative criteria, using benchmarks such as price/book, price/earnings and price/cash flow.

Results:

The Ranger International Strategy has produced a positive alpha vs. the MSCI All World Index Ex-U.S. since inception, June 2010. Investment results since inception are available in the Performance section.

Portfolio Construction

Ranger International strategy is built from the bottom up, focusing only on those companies it believes represent the best opportunity for risk-adjusted performance over a 2-4 year time horizon. Consequently, the investment team seeks to enhance results by building high conviction portfolios rather than spending time and resources on marginal investments designed to artificially diversify a client’s portfolio. As the research process seeks those companies meeting rigid growth and value criteria, the strategy seeks to generate attractive performance results while simultaneously reducing risk and volatility. Generally, by evaluating investments over a 2-4 year time period, turnover tends to be reduced. Below is a summary of typical portfolio guidelines the investment team uses with respect to portfolio construction

  • Country Allocation:
    • Residual of the bottom up research process
    • Typically limited to the greater of 20% or 1.5x the country weight of the applicable index
  • Sector Limits:
    • Residual of the bottom up research process
    • Typically limited to 30% of the portfolio
  • Industry Limits:
    • Residual of the bottom up research process
    • Typically limited to 25% of the portfolio
  • Position Sizes:
    • Portfolio holdings: approximately 30-50
    • Maximum position size at cost: 5%
    • Maximum position size at market: 7%
    • Average position size: 2-4%
  • Market Capitalization:
    • Residual of the stock selection
  • Cash:
    • Residual of the investment process
    • Typically less than 5% of the assets but can go higher

Risk Management

The Ranger International and Global strategies are more concentrated portfolios and the standards a security must meet to be included in the portfolio are high. Portfolio holdings undergone a rigorous debate, followed by research, and more debate. Ultimately, decisions are made based on issues such as, growth prospects and risk assessment as compared against current and other prospective portfolio holdings. Investment candidates must demonstrate a high margin of safety as illustrated on the balance sheet and history of consistent cash flow.

Current portfolio holdings and attractive alternatives are monitored on a real time basis for news, stock price changes and other fundamental changes using the firm’s Global Portfolio Management System. In addition to real-time monitoring, the system allows the team to break out performance related data by portfolio, specific holding, sector, country and market capitalization. The system also provides the team with relative and absolute performance comparisons against the strategy’s benchmarks.

A proprietary risk management system called the “Suspect List” alerts the team to red flags and other issues with respect to specific portfolio holdings. Once alerted, the investment team discusses the issue, conducts further research to better understand the source of the alert and then determines how best to handle the red flag. Depending upon the results of the due diligence into a particular situation of behalf of a portfolio holding, options available to the investment team include, (i) maintaining the position; (ii) trimming or purchasing more of the holding; or, (iii) selling out of the position completely.

Sell Discipline: Valuation and fundamental analysis are integral to Ranger’s philosophy and are the keys to the sell discipline. Existing and potential portfolio holdings are analyzed on a regular basis for ongoing developments. The decision to trim or sell a stock may occur when ongoing analysis determines:

  • Substantive long-term fundamental changes may negatively impact an existing holding;
  • The investment thesis for a particular company does not materialize as the team originally anticipated;
  • A company is deemed to be overvalued or reaches its price target; or,
  • A new opportunity warrants a position in the portfolio at the expense of an existing holding with less attractive characteristics.

Investment Options

Managed Accounts

Min Investment: $10 million
Income & Growth: 1.00%
International: 1.00%

Private Comingled Fund

Min Investment: $1 million
Income & Growth: 1.00%
International: 1.00%

Ranger Quest for Income & Growth Mutual Fund

 

Institutional Class

Ticker Symbol: RFIDX
CUSIP: 75281Y 800

The Ranger Quest for Income and Growth Fund (the “Fund”) seeks income by investing globally in an array of high yielding securities, primarily equities, which provide meaningful current income combined with the potential for capital appreciation. The Ranger team employs a bottom-up, fundamental research approach to investing in high yielding equities including domestic and foreign common stocks, master limited partnerships, and real estate investment trusts, that it believes will provide returns balanced between income and capital appreciation.

More information with respect to Ranger mutual funds, including how to invest, may be obtained by accessing http://www.rangerfunds.com/