Two out of three households in America - an estimated 65 million households- will probably fail to realize one or more of their major life goals.Equity Income and Protective Equity Income accounts are managed with the investment objective of producing current income and long term growth of principle. In seeking this objective, PCM invests in dividend paying stocks or dividend ETFs with appreciation potential. Investors have the option to elect principal protection which involves the purchase of out of the money puts. The purchase of puts is not a guarantee to protect 100% of principle but is a form of insurance against shocks to the portfolio. Investors may lose principle in this strategy.
DIVERSIFICATION
PCM will hold 20 to 30 stocks in the PCM Protected Equity accounts. It is expected that each stock will represent 3% to 5% of the account but at times may be as high as 15%. Industry concentration is expected to be 10% to 15% but at times may be as high as 20%. Dividend ETFs may be used as an alternate to individual equities.
STOCK SELECTION PROCESS
The stocks in the PCM Protected Equity accounts have passed through a series of fundamental and technical screens. PCM takes the universe of dividend paying stocks including international companies and screens current yield, expected dividend increase plus earnings increase over the next 12 months. The strategy filters out candidates by payout ratios, then ranks the remaining stocks by PCMs proprietary momentum screen. PCM selects the top 20 non utility stocks and up to 10 utility stocks, or appropriate ETFs.
SELL CRITERIA
Stocks in the PCM Protected Equity accounts may be sold and replaced with another candidate if:
- The analyst lower dividend estimates on any stock
- The analyst lower earnings estimates on any stock
- A selected stock fails to meet the screening criteria during any re-balance period
- Selected stock is stopped out based upon PCM risk parameters
Explanation of Performance for PCM-Protected Equity Income Strategy
Provident Capital Management, Inc. is a fee only Registered Investment Advisor under the Investment Advisers Act of 1940. Its office is located at 11595 N. Meridian, Carmel, Indiana. PCM is defined as an independent investment management firm that is not affiliated with any parent organization. PCM manages client portfolios in separate accounts. PCMs Protected Equity Income Strategy uses individual stocks to positions clients’ accounts for rising markets and offers protection in the form of purchasing puts in falling markets. The purchase of puts does not gurantee against any losses, but may help offset against the loss of equity values in falling markets. Puts may be purchased on the individual securities or on major indexes such as the S&P 500. The strategy may selling Calls or purchase / sell call or put spreads in order to hedge risk or seek incremental alpha in the strategy.
I. Presentation Description
The performance numbers are the value-weighted, time-weighted, total return composite results of all fully discretionary Protected Equity Income Strategy accounts held at TD Ameritrade. Composite performance is measured on a monthly basis and linked to obtain the quarterly and annual results. New accounts are added as of their opening date. The composite includes all accounts held at TD Ameritrade. Valuation at the end of each month is based upon prices provided by the custodian.
The Benchmark for the Protected Equity Income Strategy are is the S&P 500 Total Return index. PCM believes that the S&P500 is a benchmark that is widely used and understood by the investment community. The Protected Equity Income Strategy's goal is to produce positive returns each year it does not have an investment goal of achieving returns that correlate with any particular benchmark over the long term. Valuations are computed in U.S. dollars. The dispersion of annual returns is measured by the standard deviation among asset weighted portfolio returns represented within the composite for the full year.
Performance results for the Protected Equity Income Strategy are net of fees include reinvested dividends, interest, custodial and trading fees and are presented after management fees.
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