Equity

US Small Cap Value Equity

Experience

Stocks are selected by a highly experienced, value-focused investment team of sector specialists.

Cash-flow focus

Focus on a company’s ability to effectively deploy and generate sustainable free cash flow.

Consistent results

A disciplined investment process with a focus on risk mitigation that has been consistently applied for more than 20 years.

We believe that enhanced long-term, risk-adjusted returns can be achieved by capitalizing on the market’s consistent mispricing of individual securities. Our ability to exploit these opportunities is driven by an emphasis on independent, fundamental, in-depth research. We apply this research to identify companies that we believe have above-average expected return potential based on their long-term ability to seek to generate and manage free cash flow.

Traditional value investing

  • We believe that a company’s ability to generate sustainable free-cash flow is the most important variable in stock selection. Our experienced portfolio management team members are sector specialists and focus their research and analysis on identifying companies with great management teams that effectively deploy cash in shareholder-friendly ways.

Active can add alpha

  • Smaller companies have the potential to deliver significant returns as a result of a number of factors, including mispricing resulting from lack of analyst coverage. This inefficiency can allow a skilled manager to deliver strong investment growth over time.

Focus on identifying companies that will grow free cash flow

  • We incorporate capital deployment plans into the analysis of a company’s financials and its future free cash flow generating ability. We believe that a company’s ability to generate sustainable free cash flow is the most important variable in stock selection.

For more than 20 years, we have applied the same free cash flow-focused investment process. We are a team of highly experienced sector specialists focused on fundamental, bottom-up research and analysis, to identify companies with great management teams that effectively deploy cash in shareholder-friendly ways. We employ risk management in each step of the investment process, from preliminary research to ongoing portfolio management, to our sell discipline.

01 | Idea generation

  • Market cap range at purchase $300 million to $7.5 billion
  • Free cash flow generation
  • Multi-factor valuation, quality, and sentiment screen

02 | Preliminary research

  • Analyze long-term valuations, historical and relative
  • Financial statement analysis
  • Management quality and shareholder-friendly capital deployment

03 | Fundamental analysis

  • In-depth review of company’s financials and US Securities and Exchange Commission (SEC) filings
  • Focus on cash flow
  • Identify financial catalysts
  • Discussion with senior management
  • Valuation-based price targets

04 | Position sizing

  • Initial position size between 0.5% and 1.0%
  • Higher confidence, larger weighting
  • Downside risk / upside potential
  • Relative valuations and financial strength

05 | Portfolio construction

  • Well diversified, low turnover, typically 90 to 120 stocks
  • Ongoing review of portfolio and company-specific risk factors
  • Barra factor exposures
  • Economic conditions, US Federal Reserve policy, and business cycle


For more information on our equity capabilities

Risks

The value of the portfolio may fall as well as rise, and you may not receive back the amount invested.

As a class, equities carry higher risks than bonds or money market instruments.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

Liquidity risk is the possibility that securities cannot be readily sold within seven days at approximately the price at which a fund has valued them.

IBOR risk is the risk that changes related to the use of the London interbank offered rate (LIBOR) or similar rates (such as EONIA) could have adverse impacts on financial instruments that reference these rates. The abandonment of these rates and transition to alternative rates could affect the value and liquidity of instruments that reference them and could affect investment strategy performance.

Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis, and other severe weather-related phenomena generally, and widespread disease, including pandemics and epidemics, have been and can be highly disruptive to economies and markets, adversely impacting individual companies, sectors, industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value of the Strategy’s investments. Given the increasing interdependence among global economies and markets, conditions in one country, market, or region are increasingly likely to adversely affect markets, issuers, and/or foreign exchange rates in other countries. These disruptions could prevent the Strategy from executing advantageous investment decisions in a timely manner and could negatively impact the Strategy’s ability to achieve its investment objective. Any such event(s) could have a significant adverse impact on the value and risk profile of the Strategy.

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