Description Process Commentary
 
SmallCap Value Equity
Investment Process

Purchase Discipline

Westwood's investment process is designed to generate superior risk-adjusted returns through bottom-up, value-based stock selection.  The SmallCap Value portfolio limits the selection universe to companies with market capitalizations between $100 million and $2 billion.  We find value in companies when we expect future profitability to be significantly higher than what the current prices discount.  These criteria produce an asymmetric risk/reward profile, which Westwood believes leads to superior long-term returns.  

Analysts focus on ideas that have limited downside risk and the opportunity to generate earnings/cash flows that are higher than what the current stock price implies.  Companies are monitored and factors considered in analyzing securities include:
  • Improving ROE (return on equity)
  • A declining debt/equity ratio
  • Positive cash flow
  • Expanding margins
  • Public market less than current market comps
  • Positive earnings surprise without a corresponding increase in Wall Street earnings estimates

Sell Discipline

Companies are reviewed for sale when:

  • The stock achieves the price objective
  • Fundamental change in company or industry that negatively impacts original investment thesis
  • Market Capitalization exceeds $2.5 billion and it is not in the respective benchmark
  • Changes to the company's fundamentals that make the risk/reward profile unattractive
  • A formal review is conducted if a name is down 20% or more over any 30 day period
 
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