Investment Process

The Small Cap Growth Equity strategy is driven by a consistent process and is implemented across all portfolios. Stock ideas typically emanate from one of three sources - company interaction (e.g. meetings, conversations with management, etc.), industry contacts, and database screens. We are seeking stocks between $150 million and $3 billion in market cap at the time of purchase. Regardless of the idea sources, a series of extremely rigorous, proprietary growth and earnings revision screens are applied to narrow the investment universe from approximately 2,000 companies to a more manageable 200 investment candidate list.

From this investment candidate list, bottom-up research is conducted on each stock by the investment team to determine the sustainability of the growth rate, likelihood of exceeding expectations, and market sentiment. Each of these factors is further explored by the investment team. For instance, in assessing the sustainability of the growth, traditional research is conducted on the competitive landscape, the firm’s financial ability to fund its growth, and a thorough review of its product pipeline. To determine the likelihood of exceeding expectations, we compare current fundamental trends with existing expectations and overlay management’s execution history. In addition, we seek situations where potential investments have expanding operating margins.

Finding fundamentally sound companies is not enough. To improve the timeliness of the investment, it is critical that the market embraces a stock’s fundamental attributes. Thus, we analyze the market sentiment toward each stock, seeking situations where the sentiment is neutral to positive.

If these strict criteria are met, the stock is a candidate for the portfolio. The investment team works cooperatively to research securities while Mr. Nelson makes the final investment decisions and constructs the model portfolio.