Risk control and protecting principal in down markets is a primary focus of the portfolio construction process. Coho Partners constructs a diversified portfolio consisting of 25-30 companies with position sizes of 2% to 6% of the portfolio. We think of the portfolio as having two broad groupings of companies: 1)Demand Defensive and 2) Economically Sensitive companies.
Demand Defensive companies include consumer staples, health care, integrated energy, telecommunications and utilities sectors. These companies generally comprise 40%-70% of the portfolio and exhibit the following characteristics:
- Largely impervious to economic downturns
- Most predictable in earnings, dividends, and cash flow
- Tends to significantly outperform in down markets and compete in all but the strongest up markets
Economically Sensitive companies include industrials, consumer discretionary, technology, financials and materials sectors. These companies generally comprise 30% -60% of the portfolio and exhibit the following characteristics:
- Stable growth with modest economic cyclicality
- Provide competitive upside performance in periods of strong economic expansion
We focus on the higher quality, less cyclical companies within the economically sensitive industries. We also take a modestly contrarian approach, which tends to inject additional downside protection.
Coho does not believe in market timing through sector rotation or cash accumulation. Cash is a residual of the stock selection process and is generally limited to no more than five percent of the portfolio.
Portfolio turnover has averaged between 10% - 20% since the inception of the firm.