Essential Investment Partners, LLC

Investing in High Quality Companies With a Long Growth History

The Essential Growth Portfolio℠ seeks capital appreciation, with dividend income a secondary consideration, by investing in common stocks of companies that demonstrate long histories of strong returns on equity and consistent earnings growth.  These companies, which typically have market capitalizations in excess of $2 billion, are likely to continue to deliver strong financial results in our judgment.

Seeking Consistent Long Term Results

The Essential Growth Portfolio℠ is designed to be a core holding of US mid/large cap stocks in a client’s investment portfolio. We seek to match or exceed US equity market returns over a complete market cycle with significantly less risk.  We believe that owning a portfolio of high quality companies – those with strong balance sheets, effective management, solid business plans and access to capital — will deliver excellent risk-adjusted returns over a complete market cycle, if chosen according to a disciplined, value-oriented process. 

Using a Disciplined, Value-oriented Selection Process

We screen the universe of publicly traded US stocks for companies that meet our stringent requirements for long term financial results.  Then we cull this initial list for companies that are unlikely to continue their past successes because of macroeconomic headwinds or company-specific adverse developments. 

For the companies that survive these screens, we prepare detailed five year forecasts and calculate intrinsic values based on discounted cash flow projections.  We combine these values and several other valuation metrics to determine whether each stock is trading at a significant discount to potential future value.  If so, we evaluate each stock against other holdings.  Are its prospects better?  Does it provide exposure to growth we don’t currently have?  Is its value more compelling than other holdings? 

The net result is a portfolio of stocks that have been carefully selected for their ability to deliver strong results consistently – a portfolio that can be a core part of a client’s investments. 03 31 12 Essential Growth Portfolio Fact Sheet 

Composite Total Return Performance

for Periods Ended March 31, 2012  

Number and Size of Positions

The Essential Growth Portfolio℠ typically consists of 20-35 companies and position sizes vary from 1-6% of portfolio assets.  Position sizes are determined based on our judgments regarding:

• Confidence in management’s ability to deliver anticipated financial results
• Likelihood that the discount to intrinsic value will be reduced in the future
• Strength of the company’s business model in the context of the future expected economic climate
• Competitive positioning and prospects for profit margin maintenance or expansion

Top Ten Holdings as of March 31, 2012

(As a percentage of total portfolio. Individual client portfolio weightings may vary.) 

Qualcomm Inc.	5.4%
Oracle Corporation	5.3%
Apple Inc.	5.2%
PepsiCo Inc.	5.1%
AMETEK, Inc.	5.0%
Exxon Mobil Corporation	4.7%
3M Company	4.5%
International Business Machines Corp.	4.5%
Cognizant Technology Solutions Corp.	4.4%
Express Scripts Holding Co.	4.4%

                                                                                                        

Sector Weightings as of March 31, 2012   

(As a percentage of total equities. Individual client portfolio weightings may vary.) 

Portfolio Characteristics as of March 31, 2012

Turnover and Sell Discipline

As long as a company continues to deliver results that meet our quantitative screens and remains at a reasonable valuation relative to its growth prospects, the preferred holding period is forever.  Portfolio turnover is generally low, averaging less than 35% annually. 

A position in the Essential Growth Portfolio℠ may be reduced or eliminated if the outlook for a company changes so that it is unlikely to meet our quantitative requirements or if the stock becomes significantly overvalued, relative to its growth prospects, based on our research. 

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Important Information

The Essential Growth Portfolio℠ is a composite of portfolios managed by Essential Investment Partners, LLC (“EIP”) in this strategy.  This Portfolio may be used as a model for recommendations to other advisory clients, depending on the clients’ individual needs, financial condition and risk tolerance.  As a result, holdings in an individual client’s portfolio may vary significantly from the holdings presented above.

All composite returns are calculated as time-weighted returns, reflecting the reinvestment of dividends and capital gains, the effects of cash holdings and the deduction of brokerage commissions on cash holdings.  “Gross” returns are the total return composite for the Essential Growth Portfolio℠ without the effect of management fees charged by EIP.  “Net” returns reflect the gross returns adjusted actual fees charged to clients.  For non-fee paying clients, Net reflects gross returns adjusted for the effect of charging a hypothetical fee using EIP’s standard fee schedule of 1% of assets per annum up to $2 million, 0.75% of assets per annum on the next $3 million of assets and 0.50% of assets per annum on assets in excess of $5 million.  This is the highest fee schedule charged to any direct client of EIP using the Essential Growth Portfolio℠.  Actual fees may vary depending on the applicable fee schedule, portfolio size and other factors.  The composite contains all accounts which are or were managed as standalone portfolios using this strategy.  Past performance does not guarantee future results.  Investing in stocks involves substantial risks, including the risk of losing some or all of the amounts invested. 

Prior to 2007, the Essential Growth Portfolio℠ included stocks of all market capitalizations.  Since the beginning of 2007, a stock must have a market capitalization greater than $1 billion to be considered for purchase (and legacy positions were eliminated by the end of 2007).

The Sharpe ratio measures the amount of return per unit of risk taken and is calculated by dividing the five year annualized gross return by the five year annualized standard deviation.  The information ratio measures the consistency of excess returns over a benchmark (S&P 500®) and is calculated by dividing the five year annualized excess gross return by the five year standard deviation of the excess returns.

The S&P 500® (a registered trademark of Standard & Poor’s Financial Services LLC) is an unmanaged index of U.S. stocks weighted by market capitalization.  The S&P 500® returns presented above are time-weighted total returns, reflecting the reinvestment of dividends. 

This information is for illustrative purposes only; nothing contained herein is intended as investment advice or an opinion regarding the appropriateness of any investment, or a solicitation of any type.

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