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For institutional inquiries:
Peter PavlinaHamersley Partners, LLC
420 Boylston Street
Boston, MA 02116
617.247.8800
Small Cap Growth
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Small Cap Growth Institutional Portfolio
Philosophy
We believe that stock prices follow earnings and dividend growth over time. A properly diversified portfolio of carefully selected small cap growth stocks can build value for investors over the long term. And, the combination of quantitative tools, fundamental analysis, experience and judgment can improve the security selection process. We also recognize that small cap growth stocks can fluctuate significantly as investors' appetites for risk change. So we build portfolios taking a balanced approach of investing in emerging, stable and opportunistic stocks.
Investment Process Summary
We employ a five step process to build and manage small cap growth portfolios:
Identify: We utilize a multi-factor quantitative model to help us identified targets of opportunity and areas of risk.
Investigate: Stocks identified for potential inclusion in the portfolio are then vetted by the investment staff using traditional fundamental analysis.
Invest: Our goal is to build a properly diversified portfolio in order to balance risk and return potential for this volatile category.
Monitor: A typical small cap portfolio will have 40-60 stocks. Each position is continuously monitored for its fundamentals, valuation and impact on the risk profile of the portfolio.
Harvest: Stocks are sold if there is evidence of fundamental deterioration, excessive valuation, quantitative model erosion or market capitalization outside our guidelines.
A Balanced Approach to Small Cap Growth
Small cap growth stocks offer the potential for significant appreciation. However, this above average return potential comes with above average risks. Our goal is to mitigate this risk by taking a balanced approach to constructing portfolios. So, our portfolios maintain a balance of approximately 40% emerging growth, 40% stable growth and 20% opportunistic growth stocks at all times. We believe that this approach will allow us to participate in up markets while cushioning the portfolio in down markets.
Three Categories of Growth Stocks
As part of our investment process, we categorize small cap growth stocks into three categories having the following characteristics:
| Characteristic | Emerging | Stable | Opportunistic |
| Revenue Growth: | >15%/yr | 8-15%>year | Variable |
| Margins: | Expanding Rapidly | Stable or Rising Slowly | Recovery Potential |
| Earnings Growth: | >20%/yr | 10-20%/yr | Variable |
| Cash Flow: | Using cash | Generating cash | Generating Cash |
| Balance Sheet: | Unlevered | Some leverage | Catalyst for improvement |
| Valuation: | >Market | =>Market | <Market |
03 Mar 2008