At a Glance
Primary focus
High-quality businesses with durable competitive advantages
Role in portfolio
Reliable growth engine with defensive characteristics
Typical weighting
35–50%
Risk/return profile
Moderate volatility, superior risk-adjusted returns
Key characteristics
High & stable gross margins, strong free cash flow conversion, consistent returns on capital
How This Segment Adds Value
- Consistent cash flow generation Provides reliable dividends and reinvestment capital through economic cycles
- Defensive growth characteristics Delivers earnings growth even during market downturns
- Capital efficiency High returns on capital ensure compounding without excessive leverage
- Margin of safety Strong balance sheets and pricing power protect against competitive erosion
Selection and Construction
- Quantitative screens High and stable ROIC, consistent FCF conversion, margin durability
- Qualitative filters Economic moat assessment, management capital allocation track record
- Position sizing Core positions 5–10%, diversified across 10–18 holdings
- Rebalancing triggers Deterioration in competitive position or capital allocation discipline
Why It Matters
- Cycle resilience Performs across economic regimes, not just bull markets
- Compounding reliability Delivers steady EPS growth regardless of macro conditions
- Risk reduction Lowers overall portfolio volatility without sacrificing returns
- Quality anchor Balances higher-risk growth segments with proven business models