BirdRock Small Cap Strategy & Process
Our small cap strategy is a discretionary long only equity product with asset allocations encompassing smaller capitalized companies trading on U. S. exchange(s). The investment process is most characterized as bottom up fundamental and employs both quantitative and qualitative screening/research elements utilizing both traditional and relative value metrics/screens, some of which are proprietary. Our portfolio(s) are constructed on a stock by stock basis with varying exposures to industry and sector weightings. Our “value add” through active management is more attributed to stock selection vs. activity, timing or tactical factors as a result from well delineated research and internally developed screens.
Our investment policy statement dictates we have 40-60 companies within the portfolio with cash reserves limited to 5% and no leverage utilization. Initial investments (around 2%) are made into companies with capitalizations between $300mm-$3B. Sector and Industry limits are capped at 40% and 30% respectively and up to 15% may be invested into ADRs. In addition, we screen out all OTC issues and stocks trading below $5.00/shr. As mentioned, we utilize traditional and relative value screes to narrow our portfolio candidates. Additional screening is performed through our proprietary stock detail report (SDR) and our price forecasting model (PFM) screens. Our methodology filters and ranks various preferred company metrics based upon our “optimal” company candidate fundamental bias(s). You will find:
- Historically, our Small Cap Value composite has displayed medium/high tracking error as well as lower beta and standard deviation vs the benchmark. We believe these are not mutually exclusive ideas. But rather, a prudence with respect to this inherently volatile asset class. We do not “hug” the index. We prefer exposure to all sectors but not to a stated tracking error mandate.
- We look to capture alpha. However, we have a bias in attempting to preserve capital (avoiding large drawdowns) especially in difficult market conditions as reflected with our downside capture metrics.
- We attempt to avoid “deep value” plays, companies capitalized under $300mm and a preference for value on the move, which implies relative strength. We also prefer dividend payers and companies with possible "catalyst amplifier(s)"- the identification of a catalyst is often the transformative impetus to share price appreciation for a “value” company.
- Since 2004, our small cap strategy has acted as an “all weather” value strategy capturing alpha while providing dividend yield with exceptional "manager relative" protection of principal during down markets. Our gross performance has outperformed the Russell 2000 Value Index over the product's history (9 out of 13 years).