Applying philosophy and process to stock selection.
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Small Cap Value
Separate Accounts for Institutional Investors
This portfolio focuses on the lower end of the capitalization range with market caps between $100 million and $2 billion and a median market cap of around $1 billion. The firm believes that a focus on smaller stocks, many of which fall below the range of most money manager’s search, allows the finding and capturing of unusual inefficiencies. Liquidity constraints, a particular problem with truly neglected stocks, limit the capacity for this strategy.
Portfolio returns can be less consistent in this portfolio, because shares of these smaller companies tend to be more volatile. The portfolio will include from 75 to 100 names with portfolio weighting based on a variety of factors including; confidence in the position, risk, liquidity and market cap. Typically, no one position will account for more than 4.0% of the portfolio. Based on market cap, some very small cap names may represent less than ½ % of the portfolio. While the team seeks diversification, any use of techniques to reduce short term volatility is secondary to the goal of achieving a high return over the three year time horizon.
Stock selection will be more focused on “Special Situations” because of the greater number of this type of company in the small cap universe. Particularly at points in the market cycle when risk is being more appropriately priced, investment will be focused on companies with high financial leverage, histories of operating losses and other factors which suggest a bankruptcy risk, as well as more traditional special situations of spin-offs and turnarounds.