More specifically, the Russell 2000 index fell 10.19% for the three months ended March 31, 2008. Add in dividends paid, and the resultant total return was -9.90% a bit worse than the S&P 500's -9.45% total return.

 

Small cap value snapped back (relatively speaking) in the first quarter. The Russell 2000 Value posted a total return of -6.53% more than six hundred basis points better than the Russell 2000 Growth's total return of -12.83%. Despite the large gap, the Russell 2000 Growth still leads the 2000 Value by almost 800 basis points for the year end March 31, 2008.

 

Given this difficult environment, we are pleased to report that our small cap growth composite outperformed its benchmark, the Russell 2000 Growth for both the three and twelve months ended March 31 (before fees and expenses). In fact, the composite produced a slightly positive return for the latest twelve months versus the Russell 2000 Growth's -8.94% total return. 

 

Technology and healthcare were the two largest contributors to the Russell 2000 Growth's weak performance. Tech stocks in the benchmark fell 19.26% while healthcare stocks lost 15.99%. These two sectors alone accounted for about three quarters of the benchmark's performance. Perhaps surprisingly, financials fell 7.8% easily surpassing the benchmark.

 

One final thought on the performance small cap stocks. The Russell 2000 declined for four straight months before finally leveling out in March (it was up 0.42%). That was the second worst loosing streak for small caps in about 15 years. The worst streak, the five months from May to September of 2002, essentially marked the end of the last bear market.  Let's hope we don't set a new record this year!

We believe that one of the strengths of our investment approach is the utilization of both quantitative analysis and fundamental research to select particular stocks for our small cap growth portfolios.

 

Briefly, our quantitative process utilizes a multi-factor model to rank and score literally thousands of companies.  Factors in the model encompass a variety of measures of growth, profitability, valuation, technicals and quality.

 

Run monthly, the quantitative analysis is a source of new ideas as well as tool to monitor existing portfolio positions and critique new ideas that may come from other sources.  Importantly, the quantitative process is not a black box that picks all the stocks for the portfolio. Each new idea generated by our quantitative model is vetted by our fundamental research process before it can be added to the portfolio.

 

Our fundamental research approach involves a review of industry fundamentals, the competitive positioning of the company in question, income statement and balance sheet analysis, evaluation of management quality as well as other factors. It is during this phase of the stock selection process that we apply our many years of experience and judgement - something that can't be captured by a quantitative model.

 

In summary, we believe the blending of quantitative and fundamental research provides a steady source of new ideas and enhances the security selection process.

 

Follow the quick link to our latest presentation for more details or get in touch.  We would be happy to discuss our investment process in greater depth with you.

 

 

 

 

 

Patricia Nichols

Charles Nichols II

Christopher Ely

Roland Gillis

David Smith