Investment Management

Small Cap Growth

Portfolio Managers

James Hasso Photo

James Hasso

Head of U.S. Small Cap and Portfolio Manager

Joseph Basset, CFA Photo

Joseph Basset, CFA

Equity Analyst and Portfolio Manager

Summary

Actively managed small cap growth strategy driven by bottom-up fundamental research seeking high-quality companies with strong balance sheets and cash flow characteristics that are beneficiaries of sustainable growth trends

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

To outperform the Russell 2000 Growth Index by 2.5-3.5% annualized before management fees over full market cycles with an expected annualized tracking error of 3-6%

Process

We begin by identifying companies in the Russell 2000 Growth Index, plus opportunities outside of the index with a market capitalization that falls within the parameters of the index. Sector valuation methodologies are used to refine the investment universe by ranking each stock within its own sector based on growth characteristics, financial position, valuation and other fundamentals. We identify and quantify secular and cyclical themes likely to drive growth opportunities over a foreseeable time horizon, and assess the macro environment to understand what variables are likely to drive growth opportunities or affect equity risk premium. Next, the sector analysts "follow the cash flow" by evaluating cash flow, balance sheets and income statements to determine the ability of a company to generate and fund expected growth and to generate attractive returns on their cash flow. The analysts also analyze sector and industry fundamentals, competitive positioning and company management. Holdings typically have accelerating revenue, EPS and cash flow growth and attractive valuations based on price/sales, forward PE, cash flow yield and net cash/market capitalization, and are beneficiaries of a secular or cyclical theme. Portfolio construction is based on the attractiveness of each stock, given benchmark weight, expected return, perceived risk and liquidity.

Competitive Advantage

  • Consistent philosophy has been successfully applied across various market cycles
  • Disciplined, repeatable process driven by fundamental research
  • Stable, experienced investment team dedicated to small-cap equity
  • High quality holdings in terms of earnings, cash flows and balance sheet strength

Principal Risks

The principal risks are generally those attributable to investing in stocks and related derivative instruments. Holdings are subject to market, issuer and other risks, and their values may fluctuate. Market risk is the risk that securities or other instruments may decline in value due to factors affecting the securities markets or particular industries. Issuer risk is the risk that the value of a security or instrument may decline for reasons specific to the issuer, such as changes in its financial condition. More particularly, the strategy invests in smaller companies which may be more susceptible to price swings than larger companies because they have fewer resources and more limited products, and many are dependent on a few key managers.

*There is no guarantee that this objective will be achieved.

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