Strategies For Advisors and Consultants


Strategies For Advisors and Consultants


At Connors, we establish relationships with financial advisors and consultants as a third-party manager, delivering innovative solutions built on research and analysis.

A. Connors Covered Call Strategy

Strategy:

This approach is designed to maximize risk-adjusted returns by combining long-term appreciation potential of stocks with the low volatility and capital preservation features of covered call option writing. The foundation of this approach is a portfolio of carefully selected large-cap equities. Our emphasis is on fundamental quality: strong profitability, low-debt levels, and proven management. We sell covered call options against these underlying stocks. While this specialty reduces upside potential in very strong markets, it brings in an immediate cash return and reduces portfolio volatility.

Attributes:

  • Increased cash flow
  • Enhanced returns in down, flat, and modestly up markets
  • Strong risk-adjusted results
  • Limited upside in large upward market moves
  • Call premiums taxed as short-term gains
B. Connors S&P 500 Index BuyWrite (BXM)(SM) Strategy

Strategy:

This approach attempts to deliver attractive risk-adjusted returns by investing in a portfolio replicating the S&P 500 and systematically writing, or selling, S&P 500 Index call options against the portfolio, resulting in cash flows that moderate portfolio volatility and provide protection in down markets. Though portfolios will not participate in gains above the strike price of the call option, reducing upside potential in strong markets, the cash flows generally enhance returns in moderately rising and stable markets. Additional capital preservation approaches may be employed using exchange-traded options as market conditions dictate.

Attributes:

  • Protection in declining markets; enhanced return in flat markets; upside potential in modestly up markets
  • Reduced volatility
  • May allow greater equity allocation
  • Transparency and liquidity
  • Limited upside in large market moves

Implementation:

  • A near-term S&P 500 Index (SPX) call option is written against the S&P 500 stock index portfolio with exercise price just above the current level of the Index
  • The SPX call option has approximately one month to expiration
  • The cash received from the sale of the call option is added to the total value of the portfolio
  • The SPX call option is held to near expiration
  • There are three possibilities for the call option:
    • The S&P 500 Index level fails to rise above the strike price and the call option expires “out-of-the-money” (worthless, full value realized)
    • The S&P 500 Index rises above the strike price and the call option is “in-the-money” and is exercised for cash settlement
    • The S&P 500 Index is higher or lower than the strike price and we choose to roll the option prior to expiration.
  • Monthly, after expiration of the call option, the process is repeated
C. Connors Option Overlay Strategy

Strategy:

The objective of this approach is to work with an existing large, concentrated stock position and write covered call options against the underlying stock, as a way to help generate additional income. Aside from the potential income benefit, this approach also helps in reducing the overall risk/volatility of the position. Your clients continue to receive the dividends and now may receive additional income from the call premiums. This can also be used as a way to sell off part or all of a position—an exit strategy.

Attributes:

  • Potential to generate additional income
  • Reduces risk/volatility of assets in a concentrated stock position
  • Not all stocks are eligible for the program
  • Caps upside of stock
D. Connors Small Companies Strategy

Strategy:

The aim of this approach, which has been a specialty of Connors since our founding in 1969, is to provide returns greater than those of large company stocks. We define a “small company” as any publicly traded company with an equity market value between $500 million and $2 billion, though purchases may include companies down to approximately $250 million. Companies in which we invest are evaluated using a fundamental, bottom-up approach. Our search begins at the company level, where we scrutinize financials, the management team, competitive strengths and weaknesses, and return potential. Small company candidates are typically discovered through research conferences, regional and independent firm research, and in-house database screening. Our efforts result in a relatively concentrated portfolio of 25 to 30 holdings across the majority of economic sectors and a diversity of industries.

Attributes:

  • High potential return asset class
  • Exposure to less efficient market
  • Long-term firm and manager experience
  • Not appropriate for everyone since returns may be volatile

Connors Small Companies Strategy is based upon three, long-held fundamental beliefs:

  1. Small capitalization equities will continue to be among the highest long-term return asset classes of publicly traded securities.
  2. We believe in the ability to capitalize on market inefficiencies through in-depth fundamental research due to a lack of broad research coverage by Wall Street.
  3. There is greater opportunity to find “undiscovered” companies than in the crowded space of the most commonly followed stocks. There are also more small-cap stocks in which to invest relative to those generally considered large cap, thus providing a larger universe of potential investments.

Our Research Process

Evaluating companies requires a significant amount of time. A primary component of the process is an assessment of the strength and integrity of the senior management team. This is usually achieved through one-on-one discussions with management, conferences, and/or company visits. Discussions with company officers focus on learning the evolution of the company, its future goals, formal planning process, competitive strengths and weaknesses, and depth of management.

Additionally, we review SEC filings, company generated reports and third-party research. We also seek out industry professionals who may be able to provide valuable insight from a competitor/supplier viewpoint.

From this mosaic of information we conduct an independent analysis of earnings and valuation to estimate a likely return from an investment. Holdings and candidates are screened and ranked on a regular basis. 



Contact Us


1210 Broadcasting Road Suite 200, Wyomissing, PA 19610
Phone: 610-376-7418 | 877-376-7418 Fax: 610-376-3181
Email: info@connorsinvestor.com | Office Hours: 8:30am to 5:00pm EST



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Carnival Macchia – Dale Chihuly
Connors Investor Services, Inc.
Please choose the area of interest below

1210 Broadcasting Road Suite 200, Wyomissing, PA 19610
Phone: 610-376-7418 | 877-376-7418 Fax: 610-376-3181
Email: info@connorsinvestor.com | Office Hours: 8:30am to 5:00pm EST