Atlantic Capital Management’s overall equity philosophy is to invest in quality companies, with sound management, at reasonable valuations. We look for companies that are leaders within their industries as a result of superior management, proprietary products and significant or rapidly growing market share. These companies must have strong balance sheets and sensible business plans or models, to help them achieve long-term success. Our stock selection criteria enforce the discipline of a diversified combination of growth and value equities, across the entire spectrum of large, mid and small-cap stock classes.
We believe that the global economy will continue to grow over time and that stocks continue to be one of the best ways to participate in that growth.Our emphasis on well-diversified investment portfolios made up of high-quality securities, leads us to focus on the fundamentals of a company when analyzing and selecting stocks for a client’s account. Fundamental company data points such as earnings, dividend growth, and stock price relative to earnings, are some of the criteria we employ in that analysis and selection. While we typically use this “bottom-up” approach in our security selection process we are not averse to, and sometimes take advantage of, a “top-down” approach when a company is a clear stand-out in its peer group. In addition to our emphasis on high-quality securities, meaningful diversification, and growth at reasonable valuations, our equity investment process also monitors sector and industry weightings and individual company concentrations relative to a client’s overall portfolio holdings.
As is the case with all institutional investors, we have access to and use a great deal of investment research material from a number of sources. The often conflicting or overlapping nature of the material from these sources requires independent research and analysis on our part.
Our in-house research and analysis work provides base data for both economic and market forecasts which in turn lead to the development of an overall investment strategy. In addition to a fixed income versus equity ratio, we update industry weightings and review and revise our emphasized equity universe. Use of cash equivalents and/or bonds is effected on the basis of market strategy as well as individual portfolio constraints.
Fundamental analysis is the primary foundation of our work, although some technical indicators are considered to assist in valuing the timeliness of acquiring an investment security. Each client relationship produces specific objectives, which revolve around the client's comfort level with risk taking and expectations for account growth. Within asset allocation, we can further limit risk through diversification. We also execute all transactions and follow them to completion.
The last part of the process, Client Review, is as important as all that precedes it. Good client communication is an essential element of investment performance. Formal quarterly investment reviews detailing account assets and investment performance are individually reviewed with clients and frequent customer contact is encouraged. While we may be judged by our peers on overall relative performance, our clients should hold us to a higher standard, namely, investing funds to achieve our mutually determined and agreed upon goals.
Atlantic Capital Management’s extensive fixed income research, trading, and management experience provides our clients with sophisticated and timely fixed income services. For both taxable and non-taxable fixed income management, Atlantic Capital starts by establishing account objectives. We then develop interest rate anticipation strategies, to determine optimal positions on the yield curve for investing at a given point in time. Federal Open Market Committee activity, expected future economic data, fiscal policy and inflation expectations, are some of the factors that can have an impact on market risk. All are monitored and used in our investment process.
Atlantic Capital then analyzes the two primary risk factors that a portfolio manager must deal with in the bond market, credit risk and market risk. The first type, credit risk, is the probability of a bond issuer defaulting on principal or periodic interest payments. It is measured by incremental yield above the corresponding yield of a U.S. Treasury note. Taxable fixed income investments that Atlantic Capital considers for investment are U.S. Treasuries, Government Agencies, Corporate Bonds, convertible bonds and preferred stocks. Typically, we invest in bonds with an investment grade rating (i.e. AAA/Aaa to BBB/Baa).
The second type of risk is market risk, which relates to the maturity or term of a bond. In theory, the longer an investor is willing to hold a bond, the greater should be its expected yield. Sometimes opportunities arise when the yield curve is not in its normal ascending slope. We will invest in bonds anywhere on the yield curve, with maturities ranging from 3 months to 30 years. Bond portfolios normally hold a diversified mix of maturities that provide a targeted average life or duration, coincident with a client’s needs or as defined in an investment policy statement.
For taxable bond accounts, Atlantic Capital’s fixed income management process begins with an analysis of the appropriateness of taxable vs. non-taxable bonds. We consider not only the client’s marginal tax bracket, but also the interplay between that tax bracket and the relative value of the non-taxable bond market, and invest accordingly. Non-taxable fixed income investments include bonds issued by state and municipal governments that qualify for state and federal tax-exempt status. Tax-exempt investments typically used in client portfolios include General Obligation, Revenue, Pre-refunded and Insured Municipal Bonds. Alternative minimum tax (AMT) is taken into consideration when analyzing the appropriateness of tax-exempt municipal bonds for a given client.
Other appropriate fixed income investment strategies include active and passive immunization, dedication, horizon or duration matching and bond swapping. These strategies are used to help clients meet their fixed income goals and objectives, while maintaining acceptable risk levels.