- Employs a time-tested “Thematic Investing” process in portfolio construction and stock selection
- Favors small and mid-sized, innovative companies with the wherewithal to establish new markets and capture share from large and often lethargic competitors
- New investment opportunities are discovered through tireless fundamental research aimed at identifying companies early in the growth curve before they are fully appreciated by the broader market
- Philosophy and process are consistent with the highly successful Cortina Small Cap Growth Strategy with minimal exposure to microcap securities and the inclusion of more established mid cap companies
The Cortina SMID Growth Strategy searches for tomorrow’s leaders that Wall Street has yet to fully appreciate. Using what we characterize as a “no excuses” approach to investing, we search for stocks that can appreciate regardless of the current operating environment. The fundamental basis of this philosophy is that in any stage of a market cycle, and in all economic environments, small and mid-sized companies exist that are executing their business plans and taking market share from competitors. Regardless of the size of the company, differentiation is possible for the challengers and competitive advantage can result from:
- Enhancement of existing products and services
- Development of new products or services
- Rapid response to a changing market need
- A focus on an underserved niche
We apply a theme-based process to leverage insights across multiple securities. The core tenet of thematic investing is owning multiple companies that stand to benefit from the same trend and / or economic tailwind. Identifying a variety of companies poised to enjoy improving fundamentals is the primary advantage of a theme-based approach. Thematic investing also aims to reduce the company-specific risks inherent in small and mid cap investing.
The Cortina SMID Growth investment team passionately searches for new companies and business models. In order to find ideas before they are fully appreciated by the broader market, Cortina portfolio managers and analysts spend weeks on the road at industry research conferences and touring company headquarters and facilities. We also enjoy a tremendous flow of management teams and Wall Street analysts through our Milwaukee headquarters, as our city is home to a vibrant small and mid cap investment community. All told, the Cortina investment team holds over 1,000 private company management meetings annually.
Once an investment idea is identified, we aim to fully understand the business model of the firm – identifying what drives earnings growth and where the pitfalls lie. Our analytical process involves not only conversations with senior management at the company under consideration, but also the firm’s customers, suppliers, competitors and any industry experts we can find. This activity helps us to better understand the targeted idea and often leads to additional investment opportunities or themes. Price targets are calculated for each investment candidate using an amalgamation of general and industry-specific valuation metrics. We require a minimum of 35% upside to our price target for new purchases.
We believe inefficiencies exist in small and mid cap investing, and we aim to exploit these inefficiencies through diligent fundamental research. We recognize, however, that significant company risk exists no matter how thoroughly an investment is vetted. In order to reduce this risk, we construct portfolios that are diversified both at the security and sector levels. We typically invest in 60 – 80 companies, with no single security exceeding 5% of the portfolio at the time of purchase. We further limit sector weights to no more than 2x that of the benchmark for sectors representing 10% or more of the Russell 2500 Growth Index. Individual security weights are a function of valuation, timing and opportunity cost, and assessed risk.
While fundamental research is the primary driver of investment decisions, we employ quantitative tools to forewarn us of potential risks that may not have been revealed during the due diligence process. Our proprietary Daily Sell Alert identifies stocks displaying signs of weakness relative to their industry peers and our benchmark index. These and other tools assist us with capturing the full upside in securities that are at or near our fundamental price targets while minimizing the inherent valuation risk.
Performance as of September 30, 2017
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 SMID Growth composite numbers consist of all fully discretionary, fee-paying accounts greater than $1 million invested in our SMID Growth Strategy. This composite was created in January of 2006. Prior to October 1, 2009 the minimum threshold for composite inclusion was $5 million.
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 SMID Growth Composite is the Russell 2500 Growth Index. The Russell 2500 Growth Index measures the performance of the small-mid cap growth segment of the U.S. equity universe. It includes those Russell 2500 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2500 Growth Index is constructed to provide a comprehensive and unbiased barometer of the small-mid cap growth market. The Index is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-mid cap opportunity set and that the represented companies continue to reflect growth characteristics. Benchmark returns are not covered by the report of independent verifiers.