Schafer Cullen Small Cap Value Equity

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Strategy

Small Cap Value

Investment Strategy

  • 30-45 undervalued small cap stocks (primarily U.S companies)
  • Low P/E and earnings growth potential
  • May invest in ADRs
Strategy AUM
$11.5m (Sep 30, 2021)
Holdings
30-45
Benchmarks
Russell 2000® Value
Inception Date
Jun 1, 1992

Strategy Attributes

The Schafer Cullen Small Cap Value Equity strategy focuses this low P/E discipline on stocks that generally have a market capitalization of more than $500 million and less than $5 billion. Small cap stocks have also demonstrated above average price performance over time, according to historical studies.

In addition to market cap and P/E criteria, portfolio securities must also meet quality standards related to their cash flow, balance sheet and return on capital. Schafer Cullen Capital Management invests in those that will benefit from specific catalysts that will drive their fundamental performance and stock price.

  • The strategy invests in undervalued (low P/E), small-cap companies with above average earnings growth potential.
  • Concentrated portfolio of 30-45 stocks diversified across all sectors of the market.

Investment Process

The Schafer Cullen investment team relies heavily on fundamental research as part of its investment selection process. Because the firm has a disciplined value investment philosophy, a rigorous review of company fundamentals vs. industry peer and the overall market is an important part of the investment process.

Jim Cullen, Portfolio Manager

Screen for Value:

  • Bottom-up approach to security selection which begins with a universe of 2,500 stocks (2,000 U.S. and 500 overseas) with a market capitalization below $5 billion.

Fundamental Research:

  • High and/or improving long-term return on capital profile
  • Strong liquidity and balance sheet, including amount and maturity schedule of debt
  • Dominant or leading position in industries with stable market shares
  • Management commitment to enhancing shareholder value with strong Board governance
  • Turnaround situations where potentially disposable or improvable segments can highlight value
  • On-site meetings and discussions with management, industry experts, suppliers, customers and competitors

Portfolio Construction:

  • Diversification across approximately 25-35 stocks with equal weighting at cost
  • No more than 5% invested in any one stock at cost
  • Diversification across 15-20 industries
  • No more than 15% invested in any one industry at cost
  • Up to 30% invested in foreign securities (ADRs)
  • Generally fully invested

Sell Discipline:

  • Make room for other investment(s) with higher risk-adjusted return potential
  • Valuation objective reached
  • Earnings growth does not meet initial expectations
  • Deteriorating fundamentals or negative change in business trend

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