A Quantitative Approach to International and Emerging Markets Small Caps

1. What inefficiency exists in the small cap space?
In the international small cap space, including both developed and emerging markets, there are thousands of companies around the globe with dynamic businesses in which to invest. Yet, due to their small size, these companies are generally less researched by both the sell-side and by investors themselves.

For instance, a typical international small cap stock has less than a third the number of sell-side analysts covering it than a large cap in these markets. This lack of scrutiny contributes to the large and pervasive inefficiencies in the space which provide a significant alpha opportunity for active managers such as ourselves.

2. How does your investment approach capitalize on this inefficiency?
Our approach in the international and emerging small cap spaces is to invest in companies that are both stronger and healthier than their peers and also trading at significant discounts to those same peers. In doing so, we identify opportunities along the spectrum of the trade-off between a company’s strength and its valuation — whether they are very cheap stocks of normal strength, strong companies that are reasonably priced, or anything in between. This allows us to capitalize on the best opportunities presented in the marketplace at any given point in time. Through disciplined risk controls, we seek to minimize stock specific risk and risks due to fluctuations between countries and/or sectors, with the goal of delivering strong risk-adjusted returns over time for our clients.