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Description:

In its December 4th issue, Barron’s profiled Jeff Mortimer, CIO of equities at Charles Schwab and co-manager of the firms successful Schwab Core Equity Fund. The fund utilizes a strictly quantitative approach, with a system that looks at valuation, momentum, fundamentals and risk. As Mortimer stated himself in the profile, “we don’t put technical analysis on top of it. We don’t do anything to stand in its way”

The funds performance has proven the success of the quant system, outperforming the S&P 500 in 3 and 5 year periods.

With regards to how he views investing, Mortimer is quoted as saying that firms that can get a high cash return on their investments and have a history of beating earnings expectations tend to have good fundamentals, and fundamentals makes up about 50% of their systems rating on a stock. Valuation makes up 20%of the rating, and companies that have a lot of cash liquidity do well in that area. Momentum, another 20% of the system, is based not only on price performance of the stock but also improving analyst forecasts and decreasing short interest. The remaining 10% of the system looks at risk, which is based on market cap and stability of sales growth.

In certain situations that fall outside of the realm of the rating system, the managers have to step in and make discretionary calls. Litigation and spin-offs that nullify past financials are 2 situations that force the managers to step in and decide whether a stock should remain in the portfolio or be kicked out.

Below are some of the funds top holdings and a few descriptions by Mortimer on how the fund came to invest in those companies.


Current Returns:

1-Year: 15.40%
3-Year: 13.46%
5-Year: 10.06%

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