KCR Model Portfolios

We believe that Financial Advisors and Asset Managers should have access to cutting-edge analytics and expert insights to craft investment strategies that are not only tailored to their client’s financial goals but also adapt dynamically to market changes, ensuring that their
portfolio is positioned for optimal growth and capital preservation.

Whether you’re targeting high-quality compounders in core products across numerous
benchmarks, seeking Growth at a Reasonable Price, looking for high-quality Dividend & Income stocks, or looking for a simple method to tap into a disciplined, low-volatility strategy balancing High Beta with Low Beta dynamics, our portfolios are structured to serve your unique investment needs.

Explore our model portfolios:

Dividend & Income Model Portfolio

Russell 2500 Portfolio (SMID)

Russell 2500 Portfolio (SMID)

Russell 2500 Short Portfolio (SMID)

GARP Portfolio (SMID Growth)

GARP Short Portfolio (SMID Growth)

Attractive High-Debt Portfolio

Unattractive High-Debt Portfolio

Russell 1000 Portfolio (Large-Cap)

Russell 1000 Short Portfolio (Large-Cap)

S&P
Portfolio

Dividend & Income Model Portfolio

KCR’s Dividend & Income Model Portfolio is designed to provide a robust and reliable stream of income through a diversified selection of high-quality dividend-paying stocks. Leveraging KCR’s evidence-based approach, this portfolio aims to offer investors an attractive combination of income and potential capital appreciation, with a keen focus on fundamental strength and financial health.

Investors seeking stability and income in an increasingly uncertain market may  find our Dividend & Income Model Portfolio to be a compelling solution. The portfolio is meticulously constructed to balance income generation with the preservation of capital, making it an ideal choice for financial advisors, institutional investors and portfolio managers.

  • Evidence-Based Selection: KCR employs a rigorous, data-driven selection process that prioritizes companies with strong fundamentals, including positive free cash flow, robust earnings, and sound balance sheets.

  • Enhanced Earnings Coverage: With an average earnings coverage ratio significantly higher than the broad market, the portfolio seeks to provide a margin of safety by ensuring that dividends are well-supported by company earnings and cash flows.

  • Lower Volatility: By focusing on high-quality dividend stocks, the portfolio aims to deliver returns with lower volatility compared to the overall market, providing a smoother investment experience.

  • Attractive Valuations:The portfolio is constructed to capitalize on mispriced dividend stocks, offering attractive entry points and the potential for capital appreciation alongside dividend income.

Russell 2500 Portfolio (SMID)

The R2500 portfolio uses the disciplined application of KCR’s proprietary fundamental data to build a low-turnover portfolio of high quality small-to mid-sized firms. This portfolio is tailored for investors looking to tap into the potential for significant capital appreciation offered by smaller companies, which are often nimble and innovative, while still adhering to KCR’s investment discipline which prioritizes firm health, earnings quality, durable balance sheets and reasonable valuations.

  • High Potential Returns: Aims to capitalize on the historically higher return potential of
    smaller firms, especially those with strong business models that are undervalued.
  • Alignment with Investment Philosophy: Comprises companies that align with
    Kailash’s proven investment strategy, emphasizing sound fundamentals and potential for
    value appreciation.
  • Risk and Reward Balance: The portfolio’s emphasis on mispriced quality, mispriced
    value and mispriced growth creates what we believe is a healthy portfolio of stocks.
    Generally speaking, KCR expects our SMID Model Portfolio to outperform in down,
    sideways and modestly rising markets. During periods where speculative behavior drives
    the benchmark’s returns, we expect our model portfolio to underperform.

Russell 2500 Short Portfolio (SMID)

The R2500 Short Portfolio is aimed at investors seeking to hedge against market downturns or capitalize on the decline of overvalued small- to mid-cap companies. The portfolio includes firms that exhibit signs of overvaluation, poor earnings quality, and vulnerable balance sheets that make them likely candidates to decline or underperform the broader benchmark.

  • Profitability Focus: Targets companies poised for potential decline, offering investors
    the chance to profit from short positions in sectors or stocks that are overvalued, have
    dubious accounting or other issues making them statistically more likely to
    underperform.
  • Rigorous Selection Process: Employs KCR’s disciplined approach to identify short
    opportunities, focusing on fundamental factors with long histories of indicating that a
    stock’s risks have been mispriced.
  • Strategic Diversification: May provide a strategic hedge within a broader investment
    portfolio, countering long positions and adding stability during market volatility.
  • Growth Potential: Benefits from market corrections and downturns, capturing growth potential through strategic short-selling as part of a counter-cyclical investment
    approach.

Warning: KCR does not recommend short-selling for anyone other than the most sophisticated institutions. Unlike long portfolios where your maximum loss is the money you invest, losses on short portfolios are theoretically infinite.

GARP Portfolio (SMID Growth)

The GARP Portfolio is an investment approach that marries growth and value strategies. Targeting companies with robust earnings growth at reasonable valuations, the model portfolio seeks to exploit high growth stocks shrouded in skepticism or simply ignored by the market. This method has been particularly effective as many growth stocks have risen based on revenue growth alone, overlooking earnings, thus creating an attractive investment niche. KCR believes our GARP Portfolio is meant to be a compelling alternative to speculative investments, offering a more balanced risk-return profile.

  • Measured Growth Approach: Focuses on companies with strong growth prospects that have not been fully recognized by the market, offering potential for significant appreciation.
  • Profitability Emphasis: Prioritizes firms with strong profitability metrics, ensuring that growth is derived from solid financial performance rather than speculation.
  • Risk Mitigation: By not overpaying for growth, the GARP Portfolio strategy works to
    mitigate the risk of volatility associated with high-growth, high-multiple stocks.

Warning: KCR does not recommend short-selling for anyone other than the most sophisticated institutions. Unlike long portfolios where your maximum loss is the money you invest, losses on short portfolios are theoretically infinite.

Attractive High-Debt Portfolio

The Attractive High-Debt Portfolio helps investors who seek to exploit the abnormal returns associated with undervalued high-debt companies as explained in our research. This portfolio capitalizes on the empirical evidence that when profitable but highly-levered firms use surplus cash to pay down debt, they experience outsized returns due to multiple expansion. It zeroes in on companies that, despite their significant leverage, showcase robust profitability metrics, possess the ability to service their debts, and have clear pathways to improving their balance sheets.

  • Profitability Focus: Targets companies with proven profitability, ensuring that despite high levels of debt, the firms demonstrate strong earnings and cash flow capabilities, which are used for debt reduction.
  • Growth Potential: Despite the high-debt profile, the portfolio includes companies with clear growth trajectories, either through organic business expansion, market consolidation, or debt restructuring strategies, providing a long-term appreciation potential.
  • Strategic Selection Process: Utilizes a rigorous, data-driven approach to stock selection, focusing on detailed financial analysis and market trends to identify high debt companies that are more likely to overcome their leverage challenges and thrive.

Unattractive High-Debt Portfolio

The Unattractive High-Debt Portfolio is designed for investors looking to capitalize on overleveraged companies that may face difficulties. The strategy harnesses a contrarian approach, targeting firms with unsustainable debt levels, which may struggle under economic stress or during market downturns. It aims to profit from potential declines in the stock prices of these companies, which are often characterized by inflated valuations, weak fundamentals, poor market sentiment, and unsustainable debt loads.

  • Strategic Market Insight: The portfolio is a result of thorough research and analysis,
    identifying overleveraged companies before their potential decline becomes evident to
    the majority of the market.
  • Risk Mitigation: By shorting stocks with high debt and unattractive fundamentals,
    investors can potentially safeguard their investments against market corrections and
    downturns, as these stocks are likely to underperform.
  • Dynamic Adjustments: The portfolio employs KCR’s disciplined, evidenced-based approach to assemble a portfolio of stocks that appear highly vulnerable based on their
    capital structure. Our process-based approach works to systematically remove stocks if their fundamentals unexpectedly improve, while adding to positions that experience further fundamental decay.

GARP Short Portfolio (SMID Growth)

The GARP Short Portfolio focuses on growth stocks that exhibit unsustainable valuation metrics compared to their earnings performance. This strategy is particularly suitable for markets inflated by speculative trading and irrational exuberance towards companies with high revenue growth but poor profitability, although KCR would caution that strategies like this can go through periods of extreme volatility.

  • Profitability-Centric: Concentrates on the downside potential of stocks with weak earnings quality, providing a counterbalance in overoptimistic market conditions.
  • Risk Management: Serves as a hedge against market downturns, particularly in growth-oriented sectors that are prone to overvaluation and subsequent corrections.
  • Affordability: Enables investors to participate with a potentially lower capital outlay compared to owning stocks outright, with a focus on cost-efficiency.

Warning: KCR does not recommend short-selling for anyone other than the most sophisticated institutions. Unlike long portfolios where your maximum loss is the money you invest, losses on short portfolios are theoretically infinite.

Russell 1000 Portfolio (Large-Cap)

The R1000 Portfolio works to provide a tax-efficient method of gaining exposure to some of the largest and most influential companies in the U.S. market. This portfolio concentrates on firms within the Russell 1000 Index that demonstrate sustainable profitability, reasonable valuation, and solid market performance. This portfolio helps Financial Advisors and Institutions looking to identify and assemble a portfolio of mispriced companies within the large-cap universe with a statistically advantaged collection of fundamental features.

  • Focus on High-Quality Large-Cap Stocks: Concentrates on large-capitalization firms
    that are known for their market stability and robust financial structures.
  • Sustainable Profitability: The portfolio prioritizes companies with strong profit margins
    and cash flows while balancing the need for both “value” and “growth” styles.
  • Diversification: KCR offers both a sector-constrained and unconstrained version of this portfolio. While both typically offer broad representation across various sectors, we recognize that some mandates may demand explicit sector controls.

Russell 1000 Short Portfolio (Large-Cap)

The R1000 Short Portfolio is a strategic investment vehicle designed for investors who aim to capitalize on potential overvaluations or weaknesses within the Russell 1000 Index’s largest companies. This portfolio is designed to help Institutions and Financial Advisors interested in avoiding blowups or employing a short-selling strategy.

  • Hedging Strategy: The portfolio may serve as a hedge within a broader investment
    portfolio, offering protection against broad market volatility and declines, particularly if
    the user is comfortable with the volatility typical of short strategies and looking to exploit
    pockets of severe overvaluation.
  • Strategic Selection for Shorting: The portfolio is built using the systematic application
    of KCR’s fundamentally oriented factors. In this and other short portfolios, there may be
    an unusually high loading on “momentum” oriented signals in an attempt to help identify
    large-cap companies with potential vulnerabilities such as unsustainable valuations,
    declining earnings, incompetent management and/or sector-specific challenges.
  • Mitigation of Systemic Risk: By focusing on short positions in large-cap stocks, the
    portfolio may help hedge broader market declines by assembling a portfolio of stocks
    that are intrinsically weaker than the benchmark.

Warning: KCR does not recommend short-selling for anyone other than the most sophisticated institutions. Unlike long portfolios where your maximum loss is the money you invest, losses on short portfolios are theoretically infinite.

S&P Portfolio

The S&P Portfolio strategically selects companies from the S&P 500 index that historical evidence suggests are mispriced. While the portfolio does typically carry a value tilt, the model is not afraid to purchase growth stocks when they exhibit very high levels of accounting integrity and superb capital allocation. Like all KCR’s long model portfolios, our approach here emphasizes a low-turnover, tax-efficient implementation. This portfolio is structured for investors looking for an empirically robust, disciplined investment approach to outperforming the S&P 500 over a full market cycle.

  • Valuation Focus: Incorporates KCR’s valuation metrics, favoring stocks that offer lower
    multiples than the broader market, creating a significant margin of safety.
  • Quality and Growth: The portfolio offers a blend of quality and growth, investing in
    companies with solid earnings growth at discounted valuations, aiming for long-term
    capital appreciation.
  • Profitability Emphasis: Selects companies with durable profit margins and consistent cash flows, aligning with KCR’s focus on financial health.
  • Resilience: By focusing on fundamentally strong companies at lower valuations, the portfolio is designed to be resilient during market volatility, protecting against downside
    risks.

Trading Short Portfolio

The Trading Short Portfolio employs a higher turnover approach than our long models. The goal is to exploit investors’ behavioral tendency to herd into stocks based on excessive price increases agnostic of fundamental merit. The portfolio is assembled using KCR’s advanced tools and research to identify expensive stocks that have balance sheet, earnings quality and capital allocation features that suggest they may be prone to sharp declines. This approach can be particularly valuable for sophisticated investors looking to dynamically hedge their long- market risk.

  • Strategic Insight: The portfolio benefits from a sophisticated selection process whose
    starting point is some of the most famous academic research. The goal is to identify
    stocks with prices that have completely decoupled with fundamental reality that are
    exhibiting characteristics suggesting they may be in trouble.
  • Return Maximization: The portfolio’s goal is to profit by identifying idiosyncratic losers
    in a systematic fashion in such a manner that sophisticated institutions and Financial
    Advisors can add value in both up and down markets.
  • Diversification: By including short positions, sophisticated investors can reduce their
    exposure to beta by tapping into fundamentally weak firms that are more likely than
    average to underperform in down, sideways, or normal market environments.

Warning: KCR does not recommend short-selling for anyone other than the most sophisticated institutions. Unlike long portfolios where your maximum loss is the money you invest, losses on short portfolios are theoretically infinite.