Portfolio Construction
It should come as no surprise that 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. The portfolio is comprised of two types of companies: 1) Demand Defensive and 2) Economically Sensitive companies.
Demand Defensive companies include consumer staples, health care and integrated oil sectors and generally comprise 40%-80% of the portfolio. They 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 capital goods, consumer discretionary, technology, financial and industrial materials sectors, and generally comprise 20% -60% of the portfolio. They 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.
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