Marcellus MeritorQ PMS

Fund Snapshot

Unique Feature

Diversification

• Exposure to a variety of unrelated factors, such as value and quality
• The capture of performance from smaller businesses. Zero market cap bias

Periodic Rebalancing

• Rules-compliant semi-annual portfolio rebalancing and review
• Assures portfolio is in line with investment goals
• Keeping portfolio churn in check while routinely buying undervalued stocks

Rules-based

• Method and portfolio construction have been tested over the past 16 years.
• Process of investment over discretion
• Risk-free star portfolio manager

Active monitoring is done to make sure the final portfolio and rules are in line with the investment goals:

• Additionally, they offer an STP (Systematic Transfer Plan) plan that allows customers to space out their investments over a 5-month period.
• Existing Investors can use the Systematic Investment Plan to save and invest in Marcellus Funds regularly.

Several Enduring Guidelines For Successful Investing

Buy Good Companies

• High return on capital
• Solid financial condition
• Clean accounts

At Prices Below Intrinsic Value

• In comparison to the rest of the market, a discount to intrinsic value
• Free cash flow-based intrinsic value

Mitigate Human Biases

• Stay away from behavioral biases
• Process preceding judgment

Investing Principles

• Long only portfolio
• No use of leverage
• No use derivatives
• The exclusive forensics framework from Marcellus

Marcellus MeritorQ Approach

• Construction of a portfolio according to rules based on business fundamentals
• Choose reputable businesses that are undervalued compared to the rest of the market.
• Focus on your portfolio, which provides better risk-adjusted returns, rather than just one or two stocks.
• Refresh portfolio every two years, adding undervalued companies.

Using a rules-based strategy in conjunction with Marcellus’ forensic framework

Universe

Companies in Large, mid, and small-cap segment

Screening

Using Marcellus’ forensic accounting approach, identify accounting red flags

• Low financial leverage
• Consistent profitability

Selection

Choose the top stocks based on composite rank.

• Profitability
• Value

Position Sizing

• Basis value metric
• Semi-annually rebalanced

The Marcellus MeritorQ strategy represents a systematic, rules-based approach to equity investing that integrates Marcellus’ renowned forensic accounting expertise with a quantitative value framework. Unlike traditional discretionary funds that rely on individual stock picking, MeritorQ follows a disciplined “Quantamental” process designed to identify high-quality, undervalued businesses across the Large, Mid, and Small-cap segments while strictly filtering out companies with governance or accounting red flags.

The Forensic-First Philosophy

The foundation of MeritorQ is Marcellus’ proprietary Forensic Accounting Framework. Before any stock is considered for its value or profitability, it must pass a rigorous screening process that identifies accounting “red flags.” This ensures that the portfolio is built only on companies with genuine, transparent financial statements. By eliminating “poor” businesses first, the strategy significantly mitigates the risk of permanent capital loss, which is often a byproduct of investing in companies with aggressive accounting or poor corporate governance.

The Dual Pillars: Profitability and Value

Once a company passes the forensic screen, it is evaluated based on two primary quantitative pillars:

• Consistent Profitability: The strategy seeks out companies that demonstrate low financial leverage and a track record of consistent earnings. This ensures that the business is not just growing but doing so sustainably without over-reliance on debt.

• Reasonable Valuation: Unlike “growth at any price” strategies, MeritorQ identifies businesses that are undervalued compared to the rest of the market. By ranking stocks based on a composite score of profitability and value metrics, the fund ensures it pays a fair price for high-quality earnings.

Portfolio Construction and Discipline

MeritorQ moves away from the risk associated with concentrated bets, focusing instead on a diversified portfolio that aims for superior risk-adjusted returns. The portfolio sizing is determined by specific value metrics, ensuring that the most attractive opportunities receive appropriate weight. To maintain its edge and stay aligned with shifting market dynamics, the portfolio is refreshed every six months (semi-annual rebalancing), allowing for the inclusion of newly undervalued companies and the removal of those that no longer meet the stringent forensic or valuation criteria.

This rules-based execution removes emotional bias from the investment process, providing a structured path to wealth creation by compounding “clean” and “profitable” earnings over the long term.