Univest Blog Invest In Best of Breed During a Lackluster Market

By: Kevin Norris, President, Univest Wealth Management Division When investing, we know that in the short-term, markets are almost always unpredictable, but the volatility we're seeing this year is quite extraordinary. Investors appear to be trading on emotion, rather than focusing on the fundamentals of the businesses they own. Uncertainty almost always translates into volatility, and with the recent Brexit vote and economic conditions overseas as well as the election approaching and nebulous direction of interest rate changes, we expect volatility to persist later into the year. We like to remind investors to stay away from trading on emotion. Remember why you have companies in your portfolio with durable business models: because they tend to rebound when the market sees volatility. Investing in best of breed companies is a strategy to maintain a positive portfolio position when the market swings. So how do you vet a company to know if it's best of breed? In addition to having a strong business model there are a few other key items to look for while researching investments. Exemplary executive management Management teams that have a track record of driving returns and compensating shareholders is critical. Look for a team with clear, measureable goals that support their core products. Search out management that focuses on controlling costs, makes smart uses of capital, and consistently produces high returns on shareholder funds. Companies with a significant barrier to entry in the industry Look for a company that has a dominant position in their industry or a product vastly superior than their rivals. If a company has pricing power, the ability to raise their prices by 10 percent without breaking a sweat about losing customers, it is a business with a dominant position in their industry. Dividend paying companies As stock prices are falling, companies that pay dividends can be good for a portfolio as dividends can be redistributed in solid companies with compelling valuations. Having predictable cash flows in this low interest rate environment is more important than ever. Look for stocks that have predictable earnings and ample free cash flow which can be used to sustain and grow the business' dividend over time. Every company at one time or another will enter a stormy period, but a firm with the aforementioned characteristics will survive most storms and may even thrive afterwards. Holding dividend paying companies helps weather the storm. As stock prices are falling, and you are collecting dividends, these dividends can be deployed in solid companies with compelling valuations. At the end of the day, fundamentals trump emotions every time. This document contains "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements address our reasonable expected and anticipated outlook for various aspects of the economy and markets. Statements are subject to risk and uncertainties, which could cause actual results to differ materially from those anticipated. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. These comments are for informational purposes only and are not to be construed as a solicitation or offer to purchase or sell a security. Securities and insurance products are offered through Univest Investments, Inc., member FINRA and SIPC. Investment advisory services are offered through Girard Partners, Ltd. Trust services are offered through Univest Bank and Trust Co. These affiliated companies are licensed subsidiaries of Univest Corporation of Pennsylvania. Products and services offered are not FDIC insured, are not a deposit of or bank guaranteed, and are subject to risks, including possible loss of any principal amount invested.