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GCM – Small Cap
FIRST, we use quantitative screens to continuously search for high quality, undervalued companies with improving business prospects. We also consider a number of liquidity measures to ensure the stock is adequately tradable. This process narrows our focus from our initial universe of roughly 1000 companies to approximately 100 securities. Notably, this step is “inclusionary” with the objective of finding as many companies as possible that meet our criteria of quality (Q), value (V), and business prospects/ earnings growth (E). Inclusionary screening is conducted on a weekly basis.
 SECOND, our investment team analyzes the approximately 100 companies (of which 30-35 are already in the portfolio) from the focus list to confirm that new securities and existing holdings meet our criteria of V, E and Q. Our fundamental analysis includes an overview of the stock, the company, sell-side or Wall Street sentiment, and management of the company. Companies are assigned to the portfolio managers/analyst by sector with ongoing research performed throughout the week. As needed, the investment committee meets to discuss findings, play Devil’s Advocate, and openly exchange ideas. Though the GCM process follows clearly defined decision rules, occasionally there are differences in opinions given that the investment committee is comprised of strong independent thinkers. When there is an impasse, Lead Portfolio Manager, Tony Solsow, CFA has final decision making authority. The fundamental portion of our process is critical in validating V, E, and Q and typically narrows our focus list ranging from 10-20 securities.
THIRD, a final portfolio of 35-40 stocks is constructed given diversification parameters, risk assessment, and strength of new positions versus incumbent. We use BIRR Risk Optimizer software to limit sector and industry exposures to help craft a portfolio with focus on maximizing return at a similar risk level to the small to mid cap market. We typically build positions into “probing” positions of 2% and move up in 1% increments to a maximum of 4% at cost. We sell if two of the three variables of V, E, & Q weaken; we trim on fundamental deterioration in the company. Portfolios are all managed alike so individual portfolio managers do not have discretion to override committee decisions.
Throughout the process, we maintain the same level of focused analysis in monitoring the current stocks we own as we do in considering new purchase and potential sell candidates. Therefore, you can consider the GCM process as a continuous pursuit for better stock opportunities while we continuously monitor our client portfolios
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