SmallCap Value
Description
Westwood's SmallCap Value Portfolio invests in approximately 50-70 companies with market capitalizations between $100 million - $2 billion at the time of purchase. The portfolio team seeks high quality companies with attractive valuations and expectations for future profitability to be significantly higher than what the current prices discount. The objective is to outperform the Russell 2000 Value Index over a market cycle while incurring less volatility. The Inception date of the SmallCap Value product is January 2004.
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
- 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
- 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
Composite Performance
More Information
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