Our investment process begins with a thorough, top-down analysis of the macro environment for equities. Is the backdrop desirable for investing in stocks? To answer that question, we examine macroeconomic factors that have proven to impact stock market returns, such as the term structure of interest rates and credit spreads, investor sentiment, dividend yield and earnings payout ratios, earnings growth rates, money supply growth, U.S. dollar relative strength, equity issuance, stock repurchases, and changes in government policies.

The next step in our investment process is crucial: identifying the market’s leading industry groups. In fact, studies suggest that as much as 50% of a stock’s movement can be attributed to fluctuations in its industry group and sector. Complicating matters further, different parts of a market cycle tend to favor certain industries, and each market cycle is somewhat unique. At GNI, we use a quantitative system to objectively identify leading and lagging industry groups.

GNI’s individual security selection is the result of a rigorous evaluation of company’s fundamentals and various valuation measures. We first attempt to identify future catalysts that could lead to a systemic change in a company’s business or in its valuation. Change can come in many varieties, including company-specific catalysts like new product launches, new management teams, or geographic expansion. These company-specific factors often create the most opportunity to develop an edge through our independent, nonconsensus analysis. We then employ a combination of historical, relative, or cash flow-focused valuation methods.

As they say, timing is everything. We utilize technical analysis to determine the proper time to implement our ideas. Cost-effective portfolio implementation is also a vital part of our investment process. Our trading aims to minimize total transaction costs, or implementation shortfall – the difference between the decision price and execution price. Ultimately, transaction costs impair performance and, as GNI is a performance-driven firm, we strive to lessen these costs as much as possible.