Jul 21, 2021

Understanding Narwhal's Core Holdings List

Understanding Narwhal's Core Holdings List


When discussing investment strategy with Narwhal employees, you may hear the word “core” mentioned periodically in reference to specific equity positions. While that may not seem particularly significant, the core designation serves an important role within Narwhal’s investment strategy. The aim of this post is to offer an explanation as to what the core designation means, why Narwhal has a core holdings list, and the impact that this structure has on Narwhal clients.

What is the core?

Put simply, the Narwhal core is a collection of companies that Narwhal’s investment committee holds in the highest regard. These companies have been researched diligently and meet an extremely high investment quality standard, giving the investment committee the utmost confidence that these companies can and should be held by any and every client. Because of the level of confidence the committee has in these companies, it is mandated that each company be held in every client account in position sizes of at least 1% of the total portfolio value. The number of companies that are included in the core fluctuates, but as of now, roughly 15 companies are considered core Narwhal holdings.

How does a company become a core holding?

The path for a company to become a core holding starts with an analyst conducting weeks of research and compiling that research into an extremely detailed report that we call a “pitch.” The analyst presents that pitch to the members of the investment committee who then each conduct their own individual due diligence on the company. After individual due diligence, the investment committee comes together and discusses, at length, each member’s perception of the company. After each member of the committee presents their thoughts, a vote is held to determine whether or not the company in question meets the criteria and deserves to be added to the core holdings list. In order for a company to be added to the list, it must receive a favorable vote by a majority of the committee members.

What are the criteria for a company to become a core holding?

The criteria that must be met in order for a company to become a core holding are extensive. At a high level, a core company must consistently compound capital in a sustainable way. This means that, not only do they generate cash flow, but they reinvest that cash flow into future profitable projects, resulting in a positive self-perpetuating feedback loop. When determining if a company has the ability to meet those expectations, Narwhal examines the company through three lenses. The first lens is what we refer to as the “moat” of a company. This moat view provides detail about the robustness of a company’s operations. We assess their ability to execute, the future prospects for their business segments compared to their peers, their ability to generate cash flow, and so on. The second lens through which we examine a company is what we refer to as the “management team view.” This portion of company examination allows us to make inferences about the ability of management to execute and unlock the company’s potential by researching the management team’s track record, control of the balance sheet, and guidance reliability. The final lens through which we view a company is by considering how they appear to be positioned relative to the current and future macroeconomic environment. By understanding current trends and expected shifts in those trends based on numerous outside factors, we can inform our judgement of whether or not the company in question will have a higher or lower likelihood of sustained success. Narwhal conducts this research on each stock that we consider for investing, but in order for a company to become a core holding, it must test superbly in all three areas.

How frequently are companies added or removed from the list and what leads changes in holdings?

While the core can change at any time, it is rare that names are added or removed from the holdings list. This is due, in large part, to the incredibly high standards that a company must meet to enter the core. Those high standards make it very difficult to find worthy new entrants. In the last year, Narwhal analysts pitched 26 stocks, and of those 26, only 1 has been added to the core. Those high standards also make it unlikely that names will be removed from the core. Because of the high bar to entry and the amount of work that goes into the diligence process, it is rare that companies already in the core fall out of favor. These companies execute at such a high level, are run by top tier management teams, and have such promising secular trajectories, that major negative changes in their fundamental stories are rare. Companies are removed from time to time, but it is usually a result of massive changes to the economic landscape that play out over years and years.

Why does Narwhal have a core holdings list?

The core holdings list is advantageous for clients because of the synergistic balance that it creates in client portfolios. Narwhal views portfolio manager autonomy and creativity as an important aspect of our service, and we want that to be demonstrated in how we build out accounts for clients. At the same time, we want to ensure that the influence of the collaborative effort of the investment committee is well represented in client portfolios. The core, with its mandate to hold each company on the list in a minimum 1% position in every client account, allows clients to realize the benefits of both approaches in the appropriate balance. This structure ensures that each client is heavily exposed to ideas that have gained the approval of the investment committee but leaves plenty of room for the individual portfolio manager to express their style and conviction in a meaningful way. We think this system creates the ideal balance, providing consistent, but truly customized portfolios for each client.


Narwhal is very deliberate in the structuring of its investment strategy. We are confident that the utilization of a core holdings list creates the ideal mix of customization and consistency that provides the maximum benefit for our clients. While the number of core holdings and the specific companies included in this exclusive list may change over time, the level of diligence that goes into researching these companies and the incredibly high bar we hold them to will not.

John Grayson

Account Executive

John started at Narwhal as an investment intern in the summer of 2019 while working to complete his MBA at Auburn University. After finishing his schooling, John joined the Narwhal team in a full-time role as a client service associate in the summer of 2020. John has been tasked with servicing a portion of Narwhal’s younger client base as well as expanding the company’s management of outside 401k plans. Along with his MBA, John holds a bachelor’s degree in finance from Auburn.

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