PHILOSOPHY

From a philosophical standpoint, the Consumer lies at the center of our universe and is our key demographic. Consumer behavior yields the greatest impact on the U.S. economy, contributing approximately two-thirds to its GDP. As a result, their age, growth and desires are key measures from which we seek to decipher trends. This effect can be seen in a variety of areas in which Cardinal specializes, ranging from the Retail and Financial Services sectors to Healthcare, Technology and Energy.

Within this framework, the investment objective of our portfolios is long-term capital appreciation through ownership of well-managed, quality growth companies. We reduce risk by selecting relatively undervalued, reasonably priced stocks that generally have strong growth trends. We are not short-term “market timers,” but as our analysis reveals changes in various business, political, market and timing indicators, we are agile in modifying the weighting between equities and cash equivalents to add value when market risks are unbalanced. In addition, we will hedge the overall risk profile through both long and short positions. Current income is not a significant factor in investment selection although capital appreciation has often been accompanied by modest investment income. Due to our size and dynamic operating structure, we can effectively invest in small, medium and large capitalization companies; however, when large company valuations are relatively attractive, our selection criterion results in greater emphasis on larger companies. We set and regularly review buy/sell targets for each stock, recognizing that the timing of security sales is just as important as the original decision to buy.

METHODOLOGY

Cardinal’s methodology combines Quantitative, Industry Group and Fundamental analysis that results in statistically favorable trading opportunities.  Using proprietary, multivariate times series data analysis, Cardinal analyzes historical and current market conditions, sector, and industry group trends to recognize favorable trading patterns.  Following this, Cardinal uses a fundamental bottom-up approach as it relates to individual stock selection.  Cardinal generates returns through five aspects of the Investment Process.  

1)        The Market’s Health – Cardinal analyzes recent and historical market conditions to seek an advantage based on a multivariate model of time series data analysis.  This helps Cardinal determine the extent of long and short exposure.   Cardinal considers both current and historical economic and monetary relationships in assessing appropriate levels of industry exposure within the market as a whole.  Cardinal tracks emotional barometers such as VIX, TRIN, VXN, advance/decline, proprietary oscillators and put/call ratios as well as various cyclic measures.

2)        Industry Group Analysis –Cardinal overlays the top-down view onto 150 industry groups to find confirmation or contradictions of our beliefs.  This includes a process that screens 150 industry groups and over 5,000 companies for possible investment.  In this analysis, Cardinal lets the market speak.  This focuses Cardinal on sectors gaining relative strength and momentum for long candidates and those groups losing relative strength and momentum for short candidates.

3)        Fundamental Analysis - In addition to individual company balance sheet and cash flow analysis, Cardinal utilizes extensive management and sales channel contacts, numerous investment advisory, research, and statistical services as well as analyst contacts at both major and niche brokerage firms. We search for patterns regarding consensus earnings or revenue revisions in order to decipher that the underlying direction matches our assumptions.  In the end, Cardinal examines the idea, the consensus, our variant view, and a catalyst that will affect security prices prior to purchasing or shorting a security.

4)        Cardinal Profit Profile – Cardinal believes that markets are not random walks and that history does in fact repeat itself, therefore, Cardinal tests and predicts favorable trading strategies.  Cardinal analyzes recent market conditions for advantages based on multivariate models of time series data analysis.  We examine the chronological sequence of peaks and troughs in the various financial markets and use it as a framework to identify investment opportunities within either a bull or bear cycle.

5)        Capital Markets Activity – Although a lagging indicator for long candidates, often the best fundamental companies are those that are first to market.  For short candidates the performance of companies issuing stock or convertible debentures versus the anticipated performance of those issues can often be a leading indicator for industry group underperformance.

 Investment changes are made promptly without delays due to cumbersome committees.   Cardinal may also seek to increase the return or hedge all or a portion of the portfolio’s investments through transactions in futures and or options on securities and market or industry group ETF’s.  In addition, we may seek to hedge all or a portion of the investments held in the portfolio, or which we intend to acquire, against adverse market fluctuations by entering into stock index futures contracts and or options.

INVESTMENT POLICIES

In addition to our direct equity exposure, twenty percent of the portfolio is dedicated to convertible debt securities. Typically these investments are not hedged versus the underlying common stock.

We may also seek to increase the return or hedge all or a portion of the portfolio’s investments through transactions in options on securities. In addition, we may seek to hedge all or a portion of the investments held in the portfolio, or which we intend to acquire, against adverse market fluctuations by entering into stock index futures contracts and or options.

INVESTMENTS BY SECTOR

Portfolio investments generally fall within one of the following sectors:

Consumer
We invest in companies that participate in the emergence and overall expansion of the Consumer class as it relates to disposable income trends. This area demonstrates many of the clearest beneficiaries of these trends, thus providing a real-time barometer of Consumer money flows and the direction of underlying sentiment.

Financial Services
Financial Services companies fall into two main areas as they relate to the consumer: credit card and asset accumulation companies including brokers, mutual fund companies, banks and insurance companies. Analysis of Consumer debt and equity trends, along with the direction of interest rates, are at the epicenter of our financial services work.

Health Care
We seek promising pharmaceutical, biotechnology, medical technology and supply companies in order to capitalize on the needs of an aging population, along with the growing desire for quality of life enhancements.

Technology / Telecommunications
We invest in companies engaged in the development, manufacturing or sale of technology services and equipment in order to capitalize on the growing demand for information and the means by which it travels. We attempt to capture the ever-expanding demand for innovation and efficiency as it applies to the modernization and mobilization of the Consumer. We seek companies that are the enablers of a Consumer-friendly and efficient lifestyle.

Energy
We search for companies that own, explore for, or develop natural resources that directly or indirectly benefit our lives. These stocks are often a good barometer of industrial production trends as well as business and inflationary cycles. Primary areas of focus include: Oilfield Services, Coal, Utilities and Alternative Energy sources and technologies.

Privatization
On a Global basis, we invest in the privatization of state enterprises in both established and developing economies. These companies tend to enjoy dominant market positions and offer the opportunity for long-term capital appreciation.

INVESTMENT PROFESSIONALS

Reid M. Zeising – Managing Partner
Mr. Zeising has over 14 years of equity trading, investment banking, venture capital, and brokerage experience.  Prior to founding Cardinal, Mr. Zeising founded Institutional Advisors, a private merchant-banking firm where he invested in private equity, restructurings and workouts.  Prior to that Mr. Zeising was First Vice President of The Robinson-Humphrey Company in charge of European clients.  During this time Mr. Zeising serviced both Corporate and Institutional clients growing RH’s international business from 5% to over 30% of overall institutional revenues.  In addition, he structured and placed convertible debentures and helped to dramatically expand the corporate buyback business at RH.  Prior to Robinson-Humphrey, Mr. Zeising ran an overseas office for Reich & Co., Southeast Research Partners, in Paris, France.  Mr. Zeising was raised in Tokyo, Japan and Adelaide, Australia.  He holds a BA in International Economics - Far East from The University of Michigan, Ann Arbor. 

The foregoing synopsis of Cardinal's investment philosophy, methodology and policies has been prepared for general information purposes only. This is not an offering memorandum. This information does not constitute an offer by Cardinal to sell or a solicitation of an offer to buy any Membership Interests.

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