Small Cap Portfolio
The investment objective of our Small Cap portfolio is to seek long-term growth of capital by investing in securities that our firm believes have excellent business strength and prospects for growth, which are trading significantly below our estimate of their current worth.
PIMG’s Small Cap process begins by screening stocks traded on U.S. markets to highlight outstanding businesses. Companies are limited to those with market capitalizations of less than $4 billion at the time of investment. We further narrow the universe of publicly traded stocks to a list of potential candidates with rankings based on the fundamental factors we emphasize:
- Significant profitability as measured by high returns on equity and assets
- Sustainable profitability as reflected by continuing earnings growth
- Solid balance sheet
- Attractive valuations relative to their peer group and the overall market
- Niche business
- Solid management team
- Covered by only a few, if any, sell-side analysts and low institutional ownership
- Debt-to-capital employed must not be leveraged beyond conservative standards
- Level of insider ownership
While we are predominantly a bottom-up manager of Small Cap, we do believe certain market sectors perform better than others at distinct points in each business cycle. As a result, specific sectors may be overweighted or underweighted but usually will not exceed two times the benchmark sector weighting. The maximum exposure to any individual security is generally a 5% position. Portfolios tend to be fully invested.
A sell discipline is equally important in the management of a client’s portfolio. Essentially, when a company falls outside the parameters that made it a buy candidate, the stock will be considered for sale from the portfolio.