Download Experience - Berkshire Asset Management, LLC

WHAT SETS THE
BERKSHIRE DIVIDEND STRATEGY APART?
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Focus on dividend growth while maintaining attractive current yield
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Active management of portfolio holdings vs. “set and forget”
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Active management of portfolio weightings vs. a static, equal weighted list of names
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Dynamic management of portfolio beta based on market conditions
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Willing to raise cash tactically vs. “buy and hold forever”
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Willing to dollar cost average new accounts upon request
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Custom tax loss harvesting upon request
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Direct access to Berkshire Portfolio Managers: conference calls, client meetings,
portfolio reviews
ABOUT BERKSHIRE ASSET MANAGEMENT, LLC.
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SEC registered investment advisor
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Advisor to high net worth individuals, institutions and retirement plans
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Twenty five year operating history
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$700 million under advisory (06/30/2013)
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Employee owned, Wilkes-Barre PA based firm
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Methodical management of firm growth
DIVIDENDS: “ALWAYS IN SEASON”…
…BUT PARTICUALRY ATTRACTIVE NOW
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Below average GDP growth likely
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Consumers are rebuilding their balance sheets; less debt fueled consumption
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Interest rates are likely to stay low for some time
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Slower EPS growth
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Equity returns likely to be lower than historic average making dividends
increasingly important
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Moderate inflation
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Continued risk aversion
DEBT FUELED CONSUMPTION HAS ENDED
Data illustrates the potential effect of leverage or borrowing money has on the economy and is not intended to predict future economic growth.
PHILOSOPHY
A diversified portfolio of high quality businesses with a history of rising
dividends can lead to superior long term results and:
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Should perform better in a slow growth economy
Can provide consistent cash flow in a volatile equity market
Provide insight into the company’s fundamentals
Growing businesses that have the ability to make dividend payments
Unique opportunity created with the market’s decline
Many equities now have higher yields than bonds
Dividends and yields represent past performance, there is no assurance they will continue to be paid in the future. PORTFOLIO OBJECTIVES
Immediate Goals
ƒ Achieve a blend of high current income and growth in cash flow
ƒ Lower volatility than the S & P 500 while still capturing attractive appreciation in up cycles
Long Term Goals
ƒ Portfolio cash flow consistently increases by greater than 7.5% per year
ƒ Achieve growth in the underlying equities of 5% to 7.5% per year
ƒ Create a “win-win” situation in an uncertain market environment.
THE IMPORTANCE OF A GROWING DIVIDEND
For illustrative purposes only. Holdings, sector weightings, market capitalization and portfolio characteristics are based on representative portfolio and are subject to change at any time. Holdings,
sector weightings, market capitalization and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not and should not be
construed as investment advice or recommendations with respect to the sectors and securities, listed and it should not be used as the sole basis for any investment decision
EQUITY SELECTION PROCESS
Portfolio’s will focus on companies with:
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Strong balance sheets; low debt to equity & high interest coverage ratios
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Moderate payout ratios; below 50% of current earnings
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Consistent sales and earnings growth
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Defensible operating margins
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A history of raising the dividend
EQUITY SELECTION PROCESS
Is the Dividend Safe?
ƒ Payout ratio
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Times interest earned
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Defensible operating margins
Can the Dividend Grow?
ƒ Consistent sales and earnings growth
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Pricing power of the business
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High and sustainable return on shareholder’s equity
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Management’s commitment to dividend growth
Potential Future Return
ƒ Current yield plus dividend growth
PORTFOLIO CONSTRUCTION
The dividend portfolio will be diversified across economic sectors with 30 to 40 issues
ƒ Reduced systemic risk
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Low turnover
The resulting portfolio intends to provide an above average current income stream
ƒ The portfolio’s current yield is 180% of the yield of the S & P 500
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The portfolio’s current yield is two times the yield of the ten-year Treasury
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We believe this portfolio is less risky than the S & P 500
PORTFOLIO CHARACTERISTICS
S & P 500
Berkshire
Number of Issues
500
34
Return on Equity
13.38%
17.52%
Beta
1.00
0.76
Historic Dividend Growth
5%
9%
Current Yield
2.12%
3.30%
LT Debt to Capital
34%
36%
2013 P/E
15.7
14.2
Payout Ratio (2011)
32%
45%
Average Market Cap ($) 106 bill 88 bill
For illustrative purposes only. Holdings, sector weightings, market capitalization and portfolio characteristics are based on representative portfolio and are subject to change at any time. Holdings,
sector weightings, market capitalization and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not and should not be
construed as investment advice or recommendations with respect to the sectors and securities, listed and it should not be used as the sole basis for any investment decision.
TOP TEN HOLDINGS (6/30/2013)
Weight
(%)
Ticker
Div Yield
(%) 2013 P/E
Dividend
Payout
Beta ROE (%) Ratio (%)
PNC
pnc
4
2.4
11.0
1.49
10.0
24.0
JPMorgan Chase
jpm
4
2.8
9.4
1.63
11.9
21.0
WP Carey
wpc
3.9
4.8
24.1
1.00
18.9
81.0
Waste Management
wm
3.8
3.5
19.3
0.69
15.6
69.0
Pfizer
pfe
3.7
3.3
13.2
0.69
17.4
44.0
Cisco
csco
3.7
2.6
12.5
1.03
19.5
31.0
Kraft
krft
3.5
3.5
20.6 -
Chubb
cb
3.5
2.0
12.8
0.81
9.3
30.0
McDonald's
mcd
3.4
3.1
17.6
0.48
36.8
55.0
Microsoft
msft
3.3
2.6
12.2
0.80
32.6
32.0
-
80.0
For illustrative purposes only. Holdings, sector weightings, market capitalization and portfolio characteristics are based on representative portfolio and are subject to change at any time. Holdings, sector
weightings, market capitalization and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not and should not be construed
as investment advice or recommendations with respect to the sectors and securities, listed and it should not be used as the sole basis for any investment decision.
PERFORMANCE (6/30/2013)
Berkshire (Gross)
S&P 500
Difference
Berkshire (Net)
2009
29.30%
22.70%
6.60%
28.30%
2010
12.60%
15.10%
-2.50%
11.60%
2011
10.92%
2.11%
8.81%
9.92%
2012
12.02%
16.00%
-3.98%
11.02%
2013
18.55%
13.82%
4.73%
17.55%
Total
114.46%
90.40%
13.73%
105.40%
Annualized
20.75%
17.25%
3.23%
19.47%
Please see performance disclosures at the end of this presentation
INVESTMENT MANAGEMENT
& RESEARCH PERSONNEL
Kenneth J. Krogulski, CFA
President and Chief Investment Officer
Education:
BS, Indiana University of Pennsylvania
MBA, Wilkes University
CFA Charterholder since 1986
Experience: Ken has 35 years of experience in research, security analysis and portfolio
management. He joined Berkshire in 1990 after serving for 11 years as senior portfolio manager
for the First Eastern Bank’s trust company. Ken is a member of the Financial Analyst Society of
Philadelphia. He is Chairperson of the Appleseed Partnership, and is a director of Allied
Services, and the Great Valley Technology Alliance.
INVESTMENT MANAGEMENT
& RESEARCH PERSONNEL
Gerard Mihalick, CFA
Vice President
Education:
BA, Gettysburg College
CFA Charterholder
Member, New York Society of Security Analysts
Experience: Gerry has over 20 years of experience in the investment management industry and
joined Berkshire in 1995. He is a member of the firm’s investment committee, participates in the
firm’s equity and fixed income research process and has portfolio management responsibility
over a number of client accounts. Gerry is member of the New York Society of Security Analysts
and serves as a director for the Wilkes-Barre Triathlon Association, the St. Vincent DePaul
Kitchen and the Salvation Army, Wilkes-Barre Corp. Prior to joining Berkshire, he was employed
as a portfolio manager with Fleet Investment Advisors in Rochester, New York.
INVESTMENT MANAGEMENT
& RESEARCH PERSONNEL
Michael D. Weaver, CFA
Vice President
Education:
BA, Economics, University of Virginia
CFA Charterholder
Experience: Mike has over 15 years experience in research, security analysis and portfolio
management. At Berkshire, Mike is a member of the firm’s investment committee and has
equity research and portfolio management responsibilities. Prior to joining Berkshire in 1999,
Mike was a senior portfolio manager for Mellon Private Asset Management. He is a director of
the North Branch Land Trust and the Luzerne Foundation.
INVESTMENT MANAGEMENT
& RESEARCH PERSONNEL
Gregory C. Weaver, CFA
Vice President
Education:
BS, Business Administration, University of Central Florida
CFA Charterholder
Experience: Greg is a member of the firm’s investment committee and has equity and fixed
income research and portfolio management responsibilities. Prior to joining Berkshire in 2007,
Greg was a financial analyst for both MGM Studios, Inc and Paramount Pictures. He was an
Investment Representative for Trust Company of the West and most recently served as Wealth
Manager for the M&T Bank Investment Group. He is a member of the CFA Society of
Philadelphia and serves on the board of the Wilkes-Barre YMCA, the Home For Homeless
Women, the Luzerne County Historical Society, and the Wyoming Commemorative Association.
DISCLOSURE
Berkshire Asset Management, LLC is a Registered Investment Advisor under the Investment Advisors Act of 1940. Berkshire Asset Management manages portfolios for individuals and
institutions. The firm is also a general partner of three investment partnerships. Trade date accounting is used. Client liquidity and cash flow needs determine whether or not dividends and
interest are reinvested back into the portfolio. All index data assumes reinvestment of interest and dividends at the rate of return of the Index. Performance results presented are calculated
quarterly with geometrically linked annual returns. Past performance does not guarantee future results. The S & P 500 Index is a market capitalization weighted index of the largest 500 U.S.
stocks. It is a market-value weighted index (stock price times # of shares outstanding), with each stock’s weight in the index proportionate to its market value. The index is designed to
measure changes in the economy and is representative of most major industries. All investing carries risk including risk of principal loss. Dividends are subject to change and are not
guaranteed. The composite referenced above is an asset weighted composite of approximately 100accounts Berkshire believes are representative of the intended strategy. The composite is
composed of assets totaling approximately $110 million as of 12/31/2011. The accounts are actual accounts, and returns are time weighted. The results are not GIPS compliant nor are they
audited by a third party. No simulated or model portfolios were included. Fees are not included and if they were it would reduce returns. No statement made in this presentation shall
construe investment advice. The mention of any security is not deemed as a recommendation to buy or sell said security. Any reference to any security is simple to explain the portfolio
manager’s rationale or philosophy. Opinions and securities can change at any time. All statements made in the presentation are opinions of Berkshire Asset Management and subject to
change.
Net performance results do not reflect the deduction of investment advisory fees actually charged to the accounts in the composite but they do reflect the deduction of investment advisory fees
based on the maximum fixed fee rate in effect for the respective time period. Actual advisory fees may vary among clients invested in the strategy shown and may be higher or lower than
model advisory fees. Composites may include accounts with performance-based fees. Returns for each client will be reduced by such fees and expenses as negotiated in any client contract as
discussed in Form ADV Part 2A