Ranger implements a rigorous risk management process with respect to the growth-oriented portfolios it manages. While the entire investment team monitors risk on a daily basis, the Portfolio Manager is ultimately responsible for risk management. Ranger monitors established investment guidelines such as, portfolio diversification requirements, sector/industry and holdings limits as well as client-specific restrictions using Advent Moxy, the firm’s order management system. The investment team also uses the information generated by three proprietary risk management tools it refers to as, Long Manager, Earnings Quality Report and the Suspect List to monitor its portfolios.
Ranger’s Long Manager is a real-time analytical tool the investment team uses on a daily basis to monitor individual stocks and client portfolios. Long Manager provides detailed, up-to-the-minute market information on behalf of all portfolio holdings. It also identifies securities that violate internal guidelines or are approaching their price targets. Long Manager also generates performance attribution daily and highlights sector and industry weightings relative to those of the relevant Russell index. In addition, the program provides detailed statistics for all stocks held in the portfolio.
The investment team also uses Long Manager to evaluate an individual stock’s impact on the overall portfolio. When a new stock is added to the portfolio, the investment team can instantaneously determine how the inclusion of that particular company impacts portfolio characteristics such as sector and industry weightings and whether the addition triggers a violation of any of Ranger’s internal guidelines. Long Manager also enables investment team members to assess client imposed restrictions to help prevent possible violations.
The Earnings Quality Report enables investment team members to monitor a series of margins, ratios, and earnings quality metrics to detect early warning signs of a change in a company’s fundamental financial position and earnings risk. The report measures the various ratios that are key to EPS growth, unusual changes in margins, decreases in accrual profits and cashflow, organic growth, and changes in working capital. Once this analysis is completed, items highlighted as concerns are disseminated to the investment team for discussion, at which point decisions are made and action taken to address the concerns.
As part of its portfolio review process, Ranger uses a proprietary application called the Suspect List to identify potential candidates for sale. The objective of this application is to identify extremely successful, slowly deteriorating, or possible blowup stocks within the portfolio while seeking to simultaneously remove the potential for “emotional attachment.”