The Cratus High Income Strategy is designed to provide high yield with minimal downside risk. This strategy invests in very short term high income bond ETFs with a small position invested in small- and mid-cap high dividend stocks.
Overall risk is minimized through extensive due diligence on all companies and ETFs which Cratus Capital includes in this strategy. Interest rate risk is virtually non-existent as these bonds have very low durations. High dividend paying stocks are added opportunistically for diversification but may not represent for more than 20% of the total market value of the portfolio. This is a low volatility strategy.
The focus on short term high yielding bonds allows us to screen for the ‘best in class’ short term high yielding fixed income ETFs. We carefully analyze the composition of these ETFs and create a portfolio of short term high yielding ETFs from various sectors of the fixed income market. Optimal portfolio construction minimizes correlation between the ETFs and stocks in the fund and maximizes return potential and capital preservation.
The portfolio is well diversified by sector and industry.
Our objective is to find ETFs and stocks that are undervalued but have solid financials and have upside potential.Our value proposition is also based on the reinvestment of high income which compounds rapidly in all economic and financial market environments providing a strong cushion in the portfolio.
The Cratus approach involves selection of stocks which have consistently paid high dividends, have strong free cash flow and solid management teams.This is a focused strategy where the portfolio will hold up to 20 positions. We are investing in securities where we have very strong conviction.
One other highlight is our focus on liquidity. We are only buying stocks and fixed income ETFs that can be bought and sold daily. While we have a long term time horizon, trading is done as necessary to continuously hold positions that have solid upside potential and a high stream of current income.
One of our distinguishing features at Cratus Capital is our in-depth, independent research on all of the companies and ETFs which are held in the portfolio.We seek companies which have strong management teams.
We conduct extensive due diligence on the companies of all of the stocks and ETFs we include in the portfolio.
We conduct onsite due diligence and meet with the management teams of the companies in our portfolio.
The research process begins with a lengthy report on the company. We have access to over 50 different independent research firms which provide us with many of the facts and data on these companies.
The next step is to communicate with the company or manager and obtain all financials, press releases and interviews with senior management. This is done through conference calls and onsite visits.
Industry and sector comparison analysis is done on prospective investments.
We continue to communicate frequently with management. Final summary reports are done on all companies and ETFs.
The first screen for all investments in the Cratus High Income Strategy is that they pay a minimum yield of 4.5%. All ETF positions and stocks must be US dollar denominated.We seek a minimum float for all stocks as liquidity is essential. Diversification is key, however, when conviction is high, we may have more than one holding in the same industry.No more than 20% of the portfolio can be held in high dividend US stocks.
Since we are conducting ongoing due diligence on every position that is held in the Cratus High Income portfolio, if there is news that draws concern about the company's’ ability to pay their income or dividends, we will do additional research. If we determine that there is severe deterioration in the financial condition which may prevent the company from meeting its dividend or deterioration in a sector we hold as an ETF, we will sell this position. A sudden management change is an example of a red flag.
Positions are sold when there are new and better ideas with more value and more upside than the current positions.
Rebalancing occurs at least monthly to make certain that the holdings remain within their target allocations.