Kevin P. Cope, CFA
Vice President and Co-Chief Investment Officer
Hutchinson Capital Management – Assets Under Management – $ 534 Million
AFG Client Since 2006
1. Can you tell us a little about Hutchinson Capital Management?
HCM is an independent investment counseling firm focused on helping high net worth clients and families. Some of our families have been clients for multiple generations.
2. You have been a client of The Applied Finance Group (AFG) for a number of years; what sets AFG apart from other equity research providers?
I have been a believer in the AFG methodology, effectively, since the days even proceeding the formal formation The Applied Finance Group; I was a HOLT user before AFG’s founding and stayed with them through the transition from CFROI to Economic Margin. In addition to its analytical strengths, I was attracted to the flexibility of the AFG analytical tools. Our valuation process is based on the principles of cash economics, and AFG gives us the ability to integrate a company’s business and operational assumptions into a cash economic-based valuation framework.
3. Has AFG helped you reach better investment decisions?
The Value Expectations tool is essential to our sensitivity analyses. One element of our evaluation process involves testing the validity of the key value drivers embedded in a stock’s price. The AFG tools allow us to isolate and test each driver independently. With this ability, we can consider the feasibility of a company meeting the expectations embedded in the current stock price.
4. How does AFG’s research process and applications help the investment team save time?
There are at least two ways that the AFG system saves us time. The application of a cash economic valuation process, requires the conversion of GAAP/actuarial financial data into clean, economically-relevant data. The AFG system expedites this data cleansing process for us. Through the screening tool we can quickly identify prospective investments that meet our proprietary criteria. It’s expedient to be able to directly search and sort idea sets based on economically-relevant data. With other screening tools, we must use standard GAAP data to screen and then refine the list after manually adjusting each company’s financial data.
5. Any additional comments about AFG?
Despite my experience with the system, I still run into the occasional knowledge gap. When this happens, the AFG support infrastructure is top-notch. The client support is responsive and deeply knowledgeable. Also, we have recently added several new users, and the AFG folks have been very helpful in getting them properly trained on the system.
6. As a long-time user of AFG, do you have any advice you might share about the different ways you’ve utilized the system over the years?
The AFG product is useful across different investing platforms. I have used it in both long-only as well as in long-short frameworks. While useful in identifying inexpensive stocks to purchase, it is also helpful in spotting overvaluation; this aids in our sell-decision process. Additionally, the comprehensive international database improves our accuracy and expedites our analysis of international companies. With different accounting rules and financial nuances in foreign jurisdictions, we appreciate having the AFG adjusted financials.
7. We just completed a controversial election; does the outcome play a role in your investment decision process?
The simple answer is that it doesn’t impact our process, per se. As bottom-up investors, we focus exclusively on company-specific fundamentals. That said, we are cautiously optimistic that a more business-friendly administration with a view toward diminishing the role of monetary policy, will reduce equity price correlations and focus investor attention toward company-specific fundamentals again.