Perspective

The global universe of small cap and micro cap stocks presents a favorable environment for active management.

The Investment Opportunity

EAM’s singular focus and investment opportunity spans global small cap and micro cap equity markets, both developed and emerging. At this end of the market cap spectrum the opportunity set is vast, relatively under-covered, and fundamentally volatile. This provides EAM and its unique positive-change-based investment process the opportunity to actively exploit these market inefficiencies to earn value-added returns.

Large universe of potential investments

Total Global Investable Universe

Implications

  • Objective and systematic identification process is important
  • Research must strike balance between breadth and depth
Source: Factset universe of common stocks excluding mainland China and OTC stocks as of March 2017.

Fundamentally volatile with high dispersion between securities

Average cross-sectional volatility (%)

Implications

  • Efficient filtering process is key to focusing efforts
  • Timing is critical
  • Thoughtful risk management and portfolio construction are essential in optimizing risk/return
Source: Factset. Last 5 year average of monthly data as of 12/31/2016. *Non-US Micro Cap is the Russell Global ex-US Micro Cap index since inception February 2014, and prior is represented by stocks < $700 Million in the Russell Global ex-US Small Cap Index. All other asset classes are represented by standard Russell indices.

Less analyst coverage

Average number of analysts covering a stock

Implications

  • Must be able to identify potential investments without “street consensus”
  • Less coverage may result in slower information dissemination and a need for independent views
Source: Factset universe of common stocks excluding mainland China and OTC stocks as of March 2017.

Philosophy

EAM applies a uniform investment philosophy and process across its entire suite of strategies. All of EAM’s portfolios employ a fundamentally-driven strategy which utilizes a disciplined and objective investment process. We focus on companies that are accelerating their potential earnings growth due to positive, fundamental change. Thus, we seek to capture key inflection points in a company’s future profitability, where its implications are yet to be realized by the general market.

We believe that positive, fundamental change creates the opportunity for us to add alpha in our investment strategies. Therefore, we strive to continually identify positive, fundamental change affecting a company that may unlock the potential for improved financial performance, higher levels of profitability, and sustainable earnings acceleration. Moreover, we believe that the early discovery of this change and timely action on it, positions our portfolios to outperform consistently.

The consistent application of our investment philosophy is designed to lead us to companies that are positioned to outperform their peers with the following key attributes:

  • Low but rising growth expectations
  • Positioned to exceed those expectations of growth
  • Have the opportunity for a higher valuation framework moving forward (i.e. multiple expansion).

Process

Experience tells us it is essential to have a disciplined and objective stock selection process to identify favorable investment opportunities. This need is amplified in the global small cap and micro cap universe because of its sheer size. All of our equity strategies utilize a consistent, fundamentally-driven, bottom-up investment process which includes three distinct phases:

  • Discovering opportunities consistently
  • Analyzing changes effectively
  • Challenging our portfolios continually

Contact us to learn more