Pawleys Growth

Strategy Overview:

The Pawleys Growth strategy is designed to deliver

performance superior to the S&P 500.

Strategy Philosophy:

Pawleys Growth methodology focuses on growth potential, but also executes a deep-dive analysis of criteria including debt:equity, 5-year earnings growth, cash-flow, price:earnings, price:cash-flow, and overall brand value of the company. The disciplined process is systematic, but does vary slightly from sector to sector, and places more or less emphasis on certain criteria based on prevailing economic conditions. The strategy invests primarily in stock of large, mid, small and micro capitalized companies, and also taxable money markets and cash.

Portfolio Construction:

Generally, the portfolio with hold 20-25 positions, and will tend to mirror the sector weightings of the S&P 500. During times when economic conditions deteriorate, we use protective puts and higher levels of cash to provide downside protection. The strategy does not borrow cash or securities, invest in derivatives, or use leverage of any kind.

Risk Management:

The Pawleys Growth portfolio structure and investment process are both tightly defined. We believe that selecting stocks with certain superior financial ratios will provide investors with better performance than is provided by the overall market.

By applying Six-Sigma tools to the portfolio structuring and rebalancing process, we aim to optimize performance while minimizing downside risk.

Winning Trade Example:

In December, 2013, the Pawleys Growth model bought shares of Questcor Pharmaceuticals (QCOR) based on their strong balance sheet and solid earnings growth levels. Just four months later, Irish-based Mallinckrodt announced it would buy QCOR for a combination of cash and Mallinckrodt stock (MNK). After the deal closed we exited the MNK position, for a total return to our investors on the initial QCOR position of +120%.

Losing Trade Example:

The Pawleys Growth model took a position in Mitcham Industries (MIND) in 2013. The company had very little debt, and entering 2013, had posted trailing 5 year revenue growth of +16%. At that time, it was difficult to find revenue growth within the energy sector. The stock returned 30% for investors in 2013, and despite shrinking revenue results, we held the position as we entered 2014. It quickly became our biggest loser to date, and we exited the positon in December resulting in a -66% loss on the stock for the year.

Company Overview:

Pawleys Capital Management was founded around systematic, quality-focused processes that are designed to optimize the art of investing while minimizing portfolio manager bias that can hinder returns. The company was built with just one thing in mind: delivering performance for investors. Pawleys Capital Management focuses on U.S. equities, based on the strong belief that this asset class will remain critical to the future creation of wealth. The company specializes in disciplined growth and dividend long-only strategies, and invests in exchange-listed equities across all levels of capitalization. Since investors must be vigilant about quality, Pawleys Capital Management’s proprietary data-driven approach works to identify best-in-class opportunities within each sector of the markets. This boutique company is innovative and agile, and delivers a notable performance track record from the quiet, beautiful coast of South Carolina.

Management Bios:

Kathryn Schwartz, CEO and Portfolio Manager for Pawleys Capital Management, has over 20 years of industry experience. She built her knowledge working at Dean Witter and Charles Schwab, having been promoted quickly through diverse management roles. She specialized in areas including institutional equity trading and municipal credit, and spearheaded development of new portfolio management processes for affluent clients. From 2004-2009, she led operations for a start-up international coffee company, and delivered financial performance enabling them to advance from angel-investor private-equity financing to an initial public offering of stock.

In 2009, Kathryn relocated from California to the beautiful coast of South Carolina, where she founded Pawleys Investment Advisors and Pawleys Capital Management. By combining cutting edge technology with systematic, quality-focused portfolio management processes, the firm has experienced rapid growth. In 2012, Kathryn was appointed by the Financial Industry Regulatory Authority as a securities Arbitrator. She has been nationally featured by CNBC and the Wall Street Journal MarketWatch.

A Columbia University, New York, NY graduate holding her B.A., Kathryn also holds a Master’s Certificate in Six Sigma Process Improvement from Villanova University in Philadelphia, PA. For 13 years, she has volunteered in Winter Park, CO with the National Sports Center for the Disabled teaching blind skiers and skiers with various physical and cognitive disabilities, including terminally ill children.