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Thematic Approach

In determining whether a good company is also a good investment, Global Alpha considers stock valuations in the context of an investment theme rather than a purely bottom-up thesis. Portfolios are constructed according to asymmetric, uncorrelated economic and global market themes rather than a stock’s relative valuation within its industry sector.

A Big Universe of Small Cap Companies

Our investment universe includes all companies with market capitalizations ranging from approximately US$150 million to US$8 billion. In the search for companies with unrecognized growth potential, we utilize various screening methodologies across global databases to identify those companies that offer strong financial productivity, a historical pattern of earnings growth and management teams with a significant ownership stake.

Knowing What to Buy

Each company is subjected to a thorough assessment of its business model. Screening on measures such as profitability, revenue growth and balance sheet strength help narrow the universe. Through fundamental analysis, management interviews and on-site visits, companies with features such as dominant market share, sustainable competitive advantage and clearly defined growth strategies are identified. A discounted cash flow analysis is conducted to determine implied margins, capital intensity and growth rates. Finally, an asset-based valuation analysis is conducted.

Knowing When to Buy

In determining whether a good company is also a good investment opportunity, we identify stocks trading at a significant discount to intrinsic value along with the catalysts expected to drive realization of their true value. From our best investment ideas, portfolios of 50-70 stocks are constructed.

Knowing When to Sell

Critical to realizing and protecting accumulated gains is to know when a security should be sold. We maintain the purity of our small cap portfolios by adhering to a strong sell discipline. Positions may be sold if: a company’s market capitalization exceeds the upper limit of the benchmark; there is a change in strategy, a loss of competitive advantage or an excessive valuation; or a better investment opportunity is identified.

Risk Management

By their nature, smaller companies tend to have higher levels of stock-specific risk. We manage this risk in three key ways: 1) rigorous research and due diligence when adding a stock to a portfolio, 2) blending stocks according to uncorrelated, asymmetric investment themes, and 3) inclusion of secular or cyclical companies identified through bottom-up analysis as having unrecognized growth and/or that add diversification to a portfolio.

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