Small-Cap Core Equity

Philosophy

We believe:

• Bottom-up stock selection is the key driver of alpha
• Sector and industry experience and specialization are the keys to value added fundamental research
• Positive cash flow generation and deployment drive earnings per share, and ultimately stock prices
• Portfolios constructed in accordance with these principles, consisting of high quality companies that are beneficiaries of sustainable secular growth trends, will consistently outperform relevant benchmarks and peer group averages

Objective

The objective is to outperform the Russell 2000 Index by 2.5-3.5% annualized before management fees over full market cycles with annualized tracking error of 4-7%.

Process

The investment process begins with defining our investment universe, which consists of companies in the Russell 2000 Index with a market capitalization from $300 million to $3.0 billion, as well as opportunities outside of the index. We then utilize a quantitative screening model to refine the universe. Stocks are scored and ranked for growth characterization, financial position, valuation and other fundamentals. The next step in the process involves identifying secular and cyclical themes that are likely to drive growth opportunities over a foreseeable time horizon. Sector analysts then examine sector and industry fundamentals, competitive positioning, management strength, and financial statements to assess the ability of the company to generate and fund expected growth. Holdings typically favor companies that are beneficiaries of a secular or cyclical theme, have accelerating revenue, EPS and cash flow growth and an attractive valuation based on price/sales, forward PE, cash flow yield and net cash/market capitalization. Portfolio construction is driven by the attractiveness of individual stocks, given benchmark weighting, expected return, perceived risk and liquidity. Factor based risk analysis ensures consistency with macro and secular overlay using market, valuation and quality measures.