Vision Advisors’ principal objective in its Equity Portfolio is to seek returns from a diversified group of large- cap U.S. traded equities that we believe have the potential to achieve returns greater than Standard and Poor’s 500 Composite Stock Price Index (“S&P 500 Index”) over time. The Equity Portfolio will be primarily comprised of a diversified portfolio of large- cap stocks which currently exhibit a high degree of financial strength coupled with a track record of solid growth and which we expect have a high potential for continued growth. The total amount of diversification is, to a large degree, a function of the total amount of the individual client’s funds invested in the E-Portfolio. An account with a smaller amount invested generally will incorporate fewer stocks and therefore be less diversified.
Vision Advisors’ internal research efforts focus on identifying companies that have sustainable gross revenue (top-line) and earnings or net income (bottom-line) growth, competitive advantages and strong returns on equity. Vision Advisors selects and purchases stocks based upon its research and evaluation of a given company. During this process, we will review a given company’s past revenue and earnings growth, current cash flow status, debt factors, financial ratios such as the price-earning ratio (“PE”) and additional ratios and factors we deem to be relevant.
Securities in the Equity Portfolio may represent several sectors of the economy, but generally will not be concentrated in any one sector or constitute more than 15% in any one issuer. Securities are sold when we deem the ownership of that company is no longer attractive, or to replace that security with another security that we believe is more attractive. Considerations to sell a security may include deceleration in sales or earnings growth or expected future growth, a high stock price based upon PE Ratio or key management changes.
Vision Advisors also believes that it makes sound economic sense to employ, from time to time, a strategy of writing covered call positions against some or all of the stocks in the Equity Portfolio. The primary purpose of option writing is to earn additional income through premiums received from the buyers of the call options. By monitoring the volatility, delta and time to expiration, Vision Advisors works to optimize the trade off between receiving option premium income and the possibility of forgoing future price appreciation on the underlying stock above the written strike price of the option, until the option expires. At the same time, the investor receives a small measure of downside protection, to the extent of the net option premium received, should the price of the stock decline. By adding a covered call position to an existing long stock position, Vision Advisors will attempt to enhance the potential overall return in the portfolio. Further information about writing covered calls may be found here.
In addition to covered calls, Vision Advisors may, from time to time, purchase out-of-the-money put options to further add to the level of downside protection. The ratio of purchased put options may be less than the number of long shares of stock owned in the account. Please recognize that employing puts to help protect the stocks in an account is likely to temper total returns (due to the premium paid to purchase the put options), but does provide some downside protection against declines in the underlying stocks.