Extended Small Cap

Information as of 9/30/2017

Strategy Highlights

  • The Extended Small Cap strategy is benchmarked to the Russell 2000® Value Index.
  • As the name implies, the Extended strategy reaches down into the micro cap universe and up into the mid cap universe, expanding its market cap range from under $100 million up beyond the top end of the Russell 2000® Index (currently nearly $4 billion).
    • Actual exposures in micro and mid cap will vary, with micro cap held to less than 35% of the portfolio and mid cap to 15%.
    • The weighted average market capitalization is generally reflective of the market cap of the Russell 2000® Value Index.
  • Micro cap exposure: Companies at the lower end of the market cap spectrum may have little or no sell-side research coverage which can lead to pricing inefficiencies.
  • Mid cap exposure: The Portfolio Manager may invest in mid cap companies where there is no compelling small cap buy in the same industry, or when industry market conditions suggest that mid caps may provide favorable performance.
  • Portfolios generally demonstrate valuations below and growth characteristics at or above those of the benchmark.
  • Portfolios are actively managed using a bottom-up investment approach, and the Portfolio Manager does not attempt to time the markets. Cash is generally less than 5% of the portfolio.
  • Our approach seeks to minimize risk through diversification. Portfolios generally hold between 250 and 350 stocks, with no single position typically exceeding 2% of the total portfolio.

Objective

The objective of the Extended Small Cap strategy is to consistently outperform the Russell 2000® Value Index and our peers over a complete market cycle. The Portfolio Manager seeks to identify opportunities where a company is overlooked or its intrinsic value potential is undervalued by the market; in some cases, this value potential has yet to develop. A key feature of our approach is the ability to take a longer-term view, tracking a specific thesis against mileposts, often translating that progress to position size. Portfolio construction aims to provide characteristics (i.e., weighted average market cap) representative of the Russell 2000® Value Index but that reflect the overlooked qualities we seek.

Extended Small Cap | Annualized Returns as of 9/30/2017

† Not Annualized. Source: Advent APX.

Quarterly Fact Sheet

Download a detailed quarterly strategy fact sheet (pdf) which includes the Annual Disclosure Presentation.

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Although the statements of fact and data in this report have been obtained from, and are based upon, sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the Firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Performance returns presented Gross of Fees do not reflect the deduction of investment advisory fees. A client’s return will be reduced by the advisory fees as described in the Form ADV Part 2A and other expenses incurred by the account. For example, an annual advisory fee of 1% compounded quarterly over 10 years will reduce a gross 14.44% annual return to a net 13.24% annual return. Form ADV Part 2A is available upon request. Past performance is not indicative of future results.

The performance figures reported herein are unaudited, may be based upon information obtained via electronic data sources (“feeds”) and may be subject to change. Data feeds from many of KCM clients’ selected custodians are obtained through a third party, and are used to compare custodial data to KCM’s client account records as frequently as daily. Monthly, KCM reviews clients’ account holdings along with cash and share quantities against the custodial statements. In some instances, variances may exist between final audited custodial information and the information KCM obtains via such data feeds. All variances are typically reconciled to the applicable account no later than each month-end.

Composite specific data provided within this presentation has been calculated from accounts that are discretionary as defined in this paragraph. The assets shown are derived only from discretionary accounts. Non-discretionary accounts, as defined by KCM, are accounts that are not included in the composite due to one or any combination of the following criteria: there were significant cash inflows or outflows within the account; the account’s asset level did not meet the minimum requirement to remain in the composite; the account assets are managed by others using our non-discretionary model. The temporary removal of such an account occurs at the beginning of the month and the account re-enters the composite the month after the criteria has been met.

Russell Investment Group is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Kennedy Capital Management, Inc. Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in Kennedy Capital Management’s presentation thereof.

The Russell 2000® Value Index is used as the benchmark. The Index is unmanaged and represents total returns including reinvestment of dividends. The benchmark is used for comparative purposes only and generally reflects the comparable risk or investment style of the Firm’s strategy. The investment portfolios underlying the Index are different from the investments in the portfolios managed by the Firm.

The Russell 2000® Value Index measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000® companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2000® Value Index is constructed to provide a comprehensive and unbiased barometer for the small-cap value segment. The Index is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set and that the represented companies continue to reflect value characteristics.

The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000® is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

Michael Bertz, Ph.D., P.E., CFA®

Portfolio Manager

Michael Bertz, Ph.D., P.E., CFA®, is the Portfolio Manager for the Extended Small Cap strategy. Michael began his investment career in 2000 and prior to joining Kennedy Capital, he was a senior research analyst at WR Hambrecht & Co in San Francisco, California. He has held roles as a technology analyst at Morgan Keegan & Company, performing cognitive science and engineering research at Georgia Tech, and as a structural engineer at KPFF Consulting Engineers in Irvine, California. Michael joined KCM in 2006 as a research analyst and served as Director of Research from 2007 to 2013. Michael was awarded a Ph.D. in Structural Engineering from the Georgia Institute of Technology in 1998, following a Masters in 1994. He has also earned a B.E.D. in Architecture and a B.S. in Engineering Physics from Miami University in Oxford, Ohio.

Sean McMahon

Assistant Portfolio Manager, Research Analyst

Sean McMahon is the Assistant Portfolio Manager for the Extended Small Cap strategy.  He also serves as a Research Analyst at KCM, responsible for selecting and monitoring securities within the health care sector of KCM’s universe.  He joined KCM in 2005 after gaining experience in equity analysis through his internship at KCM.  Sean earned a BS in Business Administration from the University of Missouri – St. Louis.  Sean has also passed the Uniform Investment Adviser Law examination.

Troy Beachler, CMT®

Senior Equity Trader

Troy Beachler, CMT®, is the Senior Equity Trader for the Small Cap Select, Small Cap Select SRI, and Extended Small Cap strategies. Before joining KCM, Troy was a retail trader for three years with Berthel, Fisher & Company in Marion, Iowa. He earned a B.B.A. in Finance from the University of Iowa and has also passed the Equity Trader Limited Representative, General Securities Representative, General Securities Principal, Registered Options Principal, and Uniform Securities Agent State Law examinations.