Managed Accounts

Small Cap Opportunity Strategy

Product Highlights

  • Employs a time-tested “Franchise Investing” approach to stock selection
  • Favors unique, defendable companies with established growth profiles and advantageous industry positioning
  • Qualitative and quantitative business model analysis is performed with intensive reviews during company meetings since Franchise companies aren’t easily captured through quantitative screening
  • Throughout all market conditions, our consistent investment discipline drives decision making. Market timing is not employed

Investment Strategy

The Small Cap Opportunity Strategy seeks long-term investments in companies with strong business models that will consistently produce industry leading earnings and cash flow growth. Exceptional business models are often found where a company has established a differentiated franchise or where a secular trend creates favorable supply and demand imbalances. Franchise companies are unique and often misunderstood or unacknowledged during the formative stage of a company’s life cycle. As a result, such companies often sell below their intrinsic value, even though they are likely growing faster than the overall market and generating high levels of free cash flow. Correctly assessing the duration of a company’s franchise advantage or favorable secular trend is absolutely critical; very few businesses ultimately stand the test of time over several decades or even years.

Investment Process

Our four-phase process to research and investment encompasses Discovery, Analysis, Investment, and Exit. The first stage of the investment process is Discovery, where various methods are simultaneously employed to uncover potential investments. Ideas are generated from in-person management meetings, industry conferences, occasional database screening, Wall Street analyst contacts and industry channel checks. Cortina analysts and portfolio managers hold more than 1,000 private meetings each year with small cap companies. Analysis, the second phase, involves an in-depth examination of a company’s business and its competitive positioning. The primary focus is an operational and financial assessment of the company, which builds the foundation for the stock price valuation. Increasing operating margins, high levels of free cash flow, and rising return on equity are specifically targeted. In many cases, we construct financial models to forecast earnings and cash flow growth. After identifying an attractive portfolio candidate, the Investment is closely monitored. Frequent meetings with company officials, as well as an independent analysis of the latest business fundamentals, permit continual assessment of the risk and rewards of the security. Quarterly earnings reports, industry conferences, and channel checks provide regular data points for tracking a company’s progress against our expectations. The final stage in the research process is the Exit. Whether the price objective was reached or the fundamental story changed along with the security’s valuation, a stock is sold when the risk/reward ratio becomes unfavorable. The portfolio managers employ a 10% peak pullback rule and a strict price decline rule to capture strong investment returns while limiting capital losses.

Franchise Investing

Regardless of market capitalization, the best performing stocks over time are those with the highest level of free cash flow generation. The driver of exceptionally high cash flow generation is almost always a company’s unique positioning within an industry, as well as favorable industry dynamics that permit such success. Since all industries and sectors ultimately cycle through good and bad periods, the ability for one company to surpass all others in cash flow generation is often due to unique “franchise” characteristics. These companies exploit their niche instead of hoping to someday invent one; these companies run circles around their larger peers instead of running from them. The small cap sectors with the greatest share of franchise companies are health care, technology, consumer and select parts of industrials and financials.

Performance as of March 31, 2019

Investment Team


Cortina Asset Management, LLC (“Cortina”) is an independent investment management firm established in 2004. Cortina manages small cap equity assets in the U.S. The firm has no subsidiaries or related asset management firms.

Cortina Asset Management claims compliance with the Global Investment Performance Standards (GIPS®).

To receive a complete list and description of composites and/or a compliant presentation that adheres to the GIPS®, please call 414-225-7399.

The Cortina Small Cap Opportunity composite numbers consist of all fully discretionary, fee-paying accounts greater than $1 million invested in our Small Cap Opportunity Strategy. This composite was created in June of 2004. Prior to October 1, 2009 the minimum threshold for composite inclusion was $5 million. The decrease in account minimum explains the significant increase in the number of accounts in the Small Cap Opportunity composite for 2009.

Returns are calculated on a total return basis, including all dividends and interest, realized and unrealized gains or losses, and are net of all brokerage commissions, execution costs and without provision for federal and state income taxes. Securities transactions are accounted for on trade date. Cash and equivalents are included in performance returns. Composite returns are calculated daily. Quarterly returns are calculated by geometrically linking the daily returns for each day in the quarter and annual returns are calculated by geometrically linking the daily returns for each day in the year. All returns presented are calculated using U.S. Dollars.

Gross returns are presented before management and custodial fees and include dividends and interest, realized and unrealized gains or losses, and transaction costs. Net returns are presented after actual management fees, but include dividends and interest, realized and unrealized gains or losses, and transactions costs. A client’s returns will be reduced by the management fees and other expenses it may incur in the management of the account. For example, an actively managed account of $20 million with an annual rate of return of 10% compounded over a 10-year period that was charged a management fee of 1%, would achieve a net-of-fee return of 136.7%; compared to a gross-of-fee return of 159.4% based on the same assumptions.

The benchmark for the Cortina Small Cap Opportunity Composite is the Russell 2000 Index. The Russell 2000 Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 Index is constructed to provide a comprehensive and unbiased small cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small cap opportunity set. Benchmark returns are not covered by the report of independent verifiers.