Investment Strategies: Growth and Income Fund Criteria

January 3, 2019 – Manila. Each Portfolio Manager or Investor have their own Investment Criterias that they follow. Some may be more successful than others. Having a portfolio criteria or portfolio goal helps fund managers focus on their investment decisions and helps investors understand where their investments are going. The following criteria is used by the Maharlika Funds in Managing it´s portfolios:

  1. CONSISTENCY TEST on Dividend Payout – Companies that should be included in the portfolio should have a minimum of five years dividend payout history that is consistent. More than Ten to fifteen years of consistent dividend payout is preferred. The amount of dividend paid out should be lower than the Earnings Per Share each year.
  2. SUSTAINABILITY TEST Earnings Per Share (EPS) – EPS for each year should be higher than the dividend amount paid out each year. If the EPS is lower than the dividends paid out each year, the amount of dividends payout will not be sustainable in the long run. It maybe sustainable in the short term but not in the long term. The price of the stock tends to go down when this happens.
  3. RISK TESTBETA – Beta is one of the things we looked at since this measures risk and volatility (Standard Deviation). Companies with Betas between 0 to 1.5 are considered in our portfolios.
  4. EARNINGS TEST – Price Earnings Ratio (P/E)- The price of the Stock is compares with the earnings of the company. Companies with PE ratios from 10 to 50 times earnings are considered in our portfolios.
  5. TRADING VOLUME – Companies that have good average trading volumes are preferred since this is linked to the demand and volatility of the stock price. The lower the trading volume of the stock the less active the stock is thus easy to buy the stock but hard to disposed the stock on profit.
  6. GROWTH TEST – REVENUE GROWTH TEST – The higher the revenue of the company the better. Companies should atleast have a revenue growth of 10% each year. A period of 5 to ten year period growth should be looked at to see the stability of the company.
  7. GROWTH TEST – NET INCOME – a positive net income is is preferred. A period of 5 to 10 year growth period should also be looked at to see the stability of the company
  8. LIQUIDITY TEST – To test hos liquid the company is we look at the Current Ratio and the Debt to Equity Ratio. These are the ratios that looked at how the company is loaded with Debts and Liabilities. The higer the Debt is the higher the risk the company´s insolvency.

Using the above tests are some of the items we look at before adding a company to our portfolios.

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