Peak Resources Portfolio ⚡
The Peak Resources & Energy Portfolio (“PREP”) is based on LCM’s belief that the global economy is in the midst of an era of increasing global resource and energy scarcity and unprecedented inflationary pressures despite cyclicality in the commodities markets driven by the emergence of developing nations, spearheaded by China.
In selecting equity securities for the PREP portfolio, LCM starts by reviewing U.S. and foreign companies engaged in the natural resources industry, including those listed on the S&P Global Energy indices or the S&P Alternative Energy indices, the Philadelphia Gold & Silver Index, energy and natural resources sector ETFs and ETNs, ETFs and ETNs linked to commodities such as gold, silver, oil or agricultural products, or a commodity index; and companies engaged in alternative energy or conservation-related activities. This universe of over 1,000 companies is then screened for market capitalization greater than $250 million, a projected Price/Earnings to Growth (“PEG”) ratio less than that of the S&P 500 Index, and a high free cash-flow yield.
However, at its discretion, LCM will select companies that do not meet the screening requirement. For example, LCM may invest in junior miners that own large precious metals assets that it judges to have above-market growth potential. Due to the nature of small companies, they may not meet some or all of the requirements set forth in this paragraph.
The PEG is an indicator of a stock’s potential value. A lower PEG means that the stock is more undervalued. The resulting watch list of approximately 50 to 75 companies is further reduced by the Adviser, using a rigorous fundamental research process described below, to select approximately 30-40 equity securities for the portfolio. However, the Portfolio Managers have discretion to select stocks that we believe offer extraordinary potential upside even if they do not meet one or more of the cited criteria. The Adviser’s analysis focuses on the following factors:
- Dominant & Competitive Analysis
- Growth Factors
- Company & Quality Analysis
Once investments are identified, the portfolio is constructed under general weighting guidelines. These include but are not limited to:
- A split between energy & materials (including precious metals)
- Typical diversification among 30-40 positions
- An 8% maximum weighting for any single company (see below for details)
- Including investments in other sectors that could be beneficiaries of resource scarcity(defense, cyber-security, etc.)
Peak Resources & Energy Investment Philosophy
LCM may invest in ETFs or ETNs linked to commodities such as gold, silver, oil or agricultural products, or a commodity index. A typical commodity-related ETF or ETN may seek to achieve economic exposure to commodity prices through direct investment in a commodity, such as gold bullion; or by investing in the securities of issuers who are primarily engaged in production of specific commodities. The Adviser’s research suggests that commodity-related investments offer the potential for inflation protection, capital appreciation and returns that are not highly correlated to those of the equity markets. In a typical commodity-related ETF or ETN, the net asset value of the ETF is linked to the value of an individual commodity, or the performance of commodity indices. Commodity ETFs and ETNs may use derivatives which expose them to further risks, including counterparty risk (i.e., the risk that the institution on the other side of the trade will default).
LCM may sell a portfolio security to the extent that the Portfolio Managers have determined that it has become over-priced or the price depreciates, or it could be replaced with a security that offers a better risk/reward opportunity, or if changes occur that affect a company’s fundamentals and its future growth prospects appear weak.
From time to time, the Portfolio Managers may take temporary defensive positions that are inconsistent with the portfolio’s principal investment strategies, in attempting to respond to adverse market, economic, political or other conditions. For example, portfolios may hold cash, money market mutual funds, investment grade short-term money market instruments, U.S. Government and agency securities (including zero coupon bonds), commercial paper, certificates of deposit, repurchase agreements and other cash equivalents.
In addition to its three active investment strategies, LCM manages a limited number of advisory client accounts that are invested mainly in mutual funds. LCM designs this mutual fund strategy based on its screening process utilizing Morningstar data when selecting funds; portfolio composition is based on target sector weights according to LCM’s philosophy and client objectives. The mutual fund portfolios may be constructed with no-load funds, front-end load funds, back-end load funds, or contingent-deferred load funds. Such load fees, if any, are paid from the clients’ accounts and are paid in addition to LCM’s advisory fees. In addition, managers of mutual funds charge management fees that are exclusive of those charged by LCM to its clients.
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