The Small-Micro Cap segment of the market represents approximately 2% of the stock market by capitalization, but it includes almost half of the total number of publicly traded securities. As a result of its small relative size many investors overlook this segment of the market. However, over time the Small-Micro Cap segment has produced strong returns relative to the overall market.
Our Small-Micro Cap Value Equity strategy invests in high quality, catalyst rich companies that we expect will experience a significant improvement in earnings within the next 12 to 24 months. Our team identifies compelling investment opportunities through a rigorous bottom up research process that includes direct dialogue with the management teams of each company under consideration.
The process results in a concentrated portfolio of 30 to 45 ideas, each with its own unique and compelling investment catalyst.
Best ideas. Best results.
Our extensive investment experience leads us to believe that outperformance is driven by the highest conviction ideas within a portfolio. As a result, we believe that a concentrated portfolio consisting of high conviction, catalyst rich investments is the best way to generate significant returns relative to the rest of the market. Research shows that active portfolio manager’s best ideas tend to outperform the rest of the positions within their portfolio and concentrated portfolios tend to outperform more diversified actively managed portfolios(1). Furthermore, as portfolios move beyond 20 securities, the risk reduction benefit, as measured by standard deviation, declines materially(2).
Our Concentrated Value strategy invests in 12 to 20 individual securities that we believe possess compelling company specific catalysts. The investments in this strategy are expected to generate significant price appreciation over the next 12 to 24 months. The strategy is unconstrained by market capitalization ranges, allowing the team to select the very best investment opportunities regardless of market capitalization.
(1) Source: Yeung et al. (2012), Randolph B Cohen et al. (April 20th, 2010)
(2) Source: Elton & Gruber, Modern Portfolio Theory & Investment Analysis (November 2009)
(3) Source: Modern Portfolio Theory and Investment Analysis