Our Investment Process

For Southside to successfully structure your portfolio and help you meet your financial goals and objectives, we first must get to know you. Southside places great importance on communicating with our investment clients. Once we gain a thorough understanding of what is important to you, we can then draw on the experience of our seasoned staff and professional partners.

When you invest with Southside, you are assured of a relationship with an experienced portfolio manager who is fully supported by the joint resources of Southside Bank and our professional partners. Through discussions with you, your portfolio manager will:

Identify short and long-term investments goals
Identify the appropriate asset mix for your portfolio(s)
Execute your investment strategy
Communicate investment results and reaffirm the appropriateness of your current strategy

Our professional staff brings you and your family more than 100 years of combined experience in the investment management business. We utilize proven equity and fixed income strategies which are supported by both our own and outside investment research. We then blend these strategies with your individual circumstances to tailor a portfolio to meet your needs. Our investment approach emphasizes:

A commitment to research
High quality investments
Professional trade execution

At Southside, building client relationships and successfully managing portfolios is a continuous process. Our experience tells us client needs and financial circumstances change over time. This is why Southside places a premium on ongoing client communication.


	Our approach to investing is founded upon the highest fiduciary standards. We are committed to providing our clients with objective financial advice and investment management. We do not sell products or underwrite securities, so we have no self-interest in how we invest our clients' assets. Our advice is motivated by one concern alone - the best interest of our clients. Our entire investment process is geared towards one outcome; providing our clients with consistently sound returns relative to their risk tolerance, income and liquidity requirements, tax considerations and their time horizon for investing. Our three core objectives are (i) sustainable long-term growth, (ii) stable income and (iii) asset preservation; balancing each based on a client's individual investment objectives. We emphasize quality and diversification in both equity and fixed income portfolios. Our focus is on long-term consistent investment performance. To use baseball as an analogy, we prefer recurring singles, doubles and an occasional triple to a few isolated home runs. Consistent performance season after season is our goal.

	A client’s portfolio should be a reflection of his or her short-term needs and long term goals. Properly designing and constructing a client’s portfolio is a process of applying disciplined asset allocation and security selection techniques to the client’s needs and goals. We utilize both informal discussions and a ‘formal’ point-scored questionnaire to begin this process. As the process develops, a portfolio of securities, equity and fixed income, is designed to reflect what a client has told us about himself or herself. A client’s portfolio may be allocated among a number of sub-asset classes including Large Cap, Mid Cap, Small Cap and International Equities, U. S. Treasuries, Agencies, Corporate Bonds, Municipal Bonds, High Yield Bonds, as well as alternative investments. Most often, the Large Cap allocation and Fixed Income allocation of a client’s portfolio are invested in individual securities. The Mid Cap, Small Cap and International Equities allocations are typically invested through sub-managers, utilizing investment vehicles such as mutual funds, exchange traded funds or other comparable means. In portfolios of sufficient size, these components may be individually invested as well. For all clients, the intended result is a portfolio fully reflective of the client’s needs and goals with the potential to outperform its benchmarks with limited incremental risk. A discussion of the approach we utilize to select Fixed Income and Equity securities follows below.

Our fixed income approach uses a laddered maturity model that reflects the current interest rate environment and the liquidity and income needs of each client. A ladder strategy is one in which a portfolio of individual bonds is constructed to have approximately equal amounts invested in each maturity within a given range, to reduce interest rate risk. We typically purchase high quality securities and hold them to maturity. Based on a client’s risk tolerance and tax circumstances, we construct customized laddered portfolios of U. S. Treasuries, Agencies, Corporate Bonds and Municipal Bonds.

Southside employs a successful, proprietary process to building equity portfolios. This disciplined strategy focuses equally on stock selection and risk control. The application of this strategy to clients’ portfolios has been jointly developed by Southside and Argus Research. Argus Research and its team of analysts serve as Southside’s primary research provider.

Our core equity portfolio consists of fifty predominantly large cap stocks typically representing every sector of the economy. By maintaining a disciplined diversification strategy and then more heavily weighting those companies and sectors we believe will outperform over the near term, we seek to realize superior returns for our clients with limited incremental risk.

The security selection process is a blend of top-down and bottom-up analysis. It begins with Industry Analysis. The first step is to formulate a forecast for the economy and interest rates. Based on this forecast, a determination is made about which industries are expected to perform well over the next one-to-two years. Within each industry, analysts determine specific companies’ competitive positions and prospects.

Growth Analysis is the second step in the process. Analysts forecast growth in sales, earnings, dividends and cash flow for each company by studying growth in individual product lines, in margins, in the industry and in the economy. After smoothing a company's historical growth rates to account for fluctuations, it is analyzed versus the company's peers and the market.

Financial Strength Analysis is the third step. A Financial Strength rating is determined for each company within the universe of coverage. To assess financial strength, an elaborate ratio analysis is conducted, moving beyond the financial statements and into the footnotes of a company's SEC documents to fully understand obligations and opportunities.

The fourth step is a qualitative Management Assessment. In short, analysts need to know management in order to make a recommendation on a stock. To get to know management, they attend meetings, presentations and road shows with senior managers, travel to corporate facilities and participate in conference calls.

Risk Analysis is the fifth step. Risk is considered from both a qualitative and quantitative standpoint. On a qualitative basis, each company is reviewed in the context of Harvard Professor Michael Porter's Five Forces model to determine potential threats. On a quantitative basis, proprietary data from Vickers Stock Research is analyzed regarding institutional and insider ownership trends. A regression analysis is conducted to determine the correlation of a company's stock returns with the market's returns, and to determine the predictability of the relationship. The volatility of key financial statistics is also measured, including sales and earnings growth, and margins. Finally, a fundamental floor is determined for every stock in the universe of coverage through Valuation Analysis.

Valuation Analysis, the final step, varies by industry. For mature or predictable sectors of the economy, stock price activity is analyzed in terms of annual sales, cash flow, dividends, book value, earnings, and earnings relative to the S&P 500. Normal ratio ranges for these various parameters are determined, and then adjusted going forward based on trends in a company's growth and profitability. These adjusted ranges are applied to key sales, earnings and cash flow forecasts to arrive at a normal trading range. A Target Price within that trading range is established, and the difference between the Target Price and current price (adjusted for the Beta of the stock) is measured. If the forecast risk-adjusted return on the stock is greater than the forecast return on the market, a “buy” rating is assigned to the stock.

A company within the universe of coverage can be designated a “sell” for not passing any of the above steps. Most often, stocks rated “sell” are either fully valued, face extraordinary risks, or are in an industry that is expected to under perform the broad market.

In summary, our disciplined investment process incorporates three key critical elements.

	Seeks to maximize return at an appropriate level of risk Controls risk by limiting large sector, industry and issue concentration

	Combines fundamental analyst bottom up input with top down economic and market analysis

	Provides exposure to different management styles Combines value and growth factors for consistent performance

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We want you to know that investment products provided by Southside Trust & Investment Services:

Are Not FDIC Insured

May Lose Value

Are Not Bank Guaranteed