Sandy Rufenacht, of Aquila Three Peaks, takes an intensive look at companies before investing, looking especially at their free cash flow over the next 12 months and their relationship with debt. The approach seems to be paying off. The Aquilla Three Peaks Opportunity Growth Fund he manages beat 97% of competitors over the past three years, and the Aquilla Three Peaks High Income bond fund has beaten two-thirds of its peers over that period.

Looking at probable free cash flow over the coming year allows Rufenacht to assess how the cash may lift debt covenants and what will be left for equity investors. This does not mean Rufenacht shies away from indebted companies. Instead, he sees leverage as a possible way to increase the company’s potential.  Still, he prefers companies with more predictable cash flow and business models, tending to avoid cyclical industries.