Every fund manager touts his or her unique approach to investing, but few can claim absolute exclusivity. This fund manager has proof that he’s the only one using his process: US Patent Number 7,107,229 B1.

Unlike the innovations of many patent-holding inventors, Gerry Sullivan’s portfolio-building process for Industry Leaders (ILFIX) is extremely easy to follow.

Before becoming a fund manager, Sullivan worked as a corporate finance analyst with Salomon Brothers and pulled stints as a bond-options trader and as a financial expert for the 1996 Atlanta Olympics. Over that time he developed an expertise in computer modeling; when he founded Claremont Investment Partners in 1995, he built his practice around a disciplined, quantitative process.

His years in finance taught him that popular indexes produce inefficiencies because they don’t hold only the best of the best. Sullivan took it upon himself to build a well-diversified portfolio of large-cap stocks that offered exposure to all of the industries in the US stock market. His long-term objective: to outperform the S&P 500.

To accomplish this goal, Sullivan’s portfolio holds only the best blue-chip names in proportion to their weight in the index.

Sullivan’s strategy is simple. Using the Value Line Investment Survey’s 93 industry classifications, he invests in the largest company or companies in the industries that have the strongest balance sheets. He doesn’t take a company’s business model or growth prospects under consideration, nor does he worry about valuation.

That makes Sullivan’s investment process relatively straightforward. His computer screens analyze each industry, totaling the shareholder equity of all the companies in the group and dividing the sum into the total shareholder equity of the S&P 500. This calculation yields the weighting assigned to each industry.

Because he wants only the best, his model eliminates an industry whose total debt is deemed excessive. This approach usually limits the fund’s investments to 50 or so industries.

No individual name in the portfolio accounts for more than 2.5 percent of total assets; if his model assigns an industry a higher weight, he will usually invest in the top two companies in that group.

Sullivan goes beyond market capitalization in his efforts to single out the largest companies in each industry, homing in on shareholder equity–a company’s total assets minus its total debt. This measure enables the fund to weed out names that have grown by taking on leverage.

Accordingly, the average size of the fund’s portfolio holdings is much larger than the average for the S&P 500 in terms of market capitalization.

To maintain the fund’s portfolio weightings and ensure its holdings meet his criteria, Sullivan rebalances the portfolio on a monthly basis. This process involves selling shares of holdings that have exceeded 2.5 percent of assets and adding to stocks whose weightings have fallen below intended levels–in essence, buying low and selling high.

Following this approach lowers the average valuation of the fund’s holdings and cushions against downside risk–an insurance policy that helped it outperform both its category and the S&P 500 during the market crisis.

Other than occasional mid-month adjustments due to mergers and acquisitions, Sullivan makes no changes to his portfolio; he’s completely agnostic to the news of the day, resting assured that he only owns quality companies.

Although his methods have proved extremely successful, it also means the fund sometimes holds positions in extremely unloved companies. For example, data from Morningstar indicates that the fund’s top holding is Goldman Sachs Group (NYSE: GS).

Currently the target of a civil suit filed by the Securities and Exchange Commission (SEC), the oft-maligned investment bank is one name many investors are avoiding.

But don’t let this idiosyncrasy prevent you from adding this offering to your portfolio. These situations have occurred throughout the fund’s existence but haven’t adversely impacted its performance.

Although the fund has lagged the markets this year, it boasts a solid track record that ranks it in the top quarter of its category on a three- and five-year basis. The fund’s performance over the past decade puts it in the top 18 percent of its category.

Are you a buy-and-hold investor seeking a fund that reflects this philosophy? Industry Leaders is an excellent candidate for your portfolio.