Small Cap Equity Transformations
Inefficiently Priced With A Long Runway for Growth
Small caps are not well covered by Wall Street and investors. Hence, small caps are an inefficient market that creates tremendous opportunities to uncover mispriced investments that most others do not follow.
Going a step further, we find that companies undergoing transformations provide the most fertile grounds for mispricings and also have natural catalysts. Transformations are often mispriced because “change” creates uncertainty and reported financials lag changing fundamentals. As a transformation becomes evident, its share price can more accurately reflect the changes.
Our Long positions are often companies moving from good to great by attracting talented leaders, extracting hidden value, and/or adopting better strategies. Our Short positions are often companies entering a phase of material deterioration leading to the breakdown of intrinsic value.
Being Engaged with All One’s Attention
Uncovering compelling transformations at the right time in their evolution requires a deep understanding of the business. Hence, we construct a concentrated portfolio with a limited number of holdings. This approach affords us the time to identify a company’s key growth drivers. It also gives us an opportunity to develop deep relationships with company leadership. In turn, we can better understand how they will execute to achieve long-term business objectives and drive stock prices higher.
We believe that constructing a concentrated portfolio creates a higher level of focus and sets a higher bar for inclusion into the portfolio. Thus, we maximize our investment partners’ exposure to our best ideas.