The aim of the strategy, which has been a specialty of Connors since our founding in 1969, is to provide returns greater than those of large company stocks. We define a “small company” as any publicly traded company with an equity market value between $500 million and $2 billion, though purchases may include companies down to approximately $250 million. Companies in which we invest are evaluated using a fundamental, bottom-up approach. Our search begins at the company level, where we scrutinize financials, the management team, competitive strengths and weaknesses, and return potential. Small company candidates are typically discovered through research conferences, regional and independent firm research, and in-house database screening. Our efforts result in a relatively concentrated portfolio of 25 to 30 holdings across the majority of economic sectors and a diversity of industries.
- High potential return asset class
- Exposure to less efficient market
- Long-term firm and manager experience
- Not appropriate for everyone since returns may be volatile
Connors Small Companies Strategy is based upon three, long-held fundamental beliefs:
- Small capitalization equities will continue to be among the highest long-term return asset classes of publicly traded securities.
- We believe in the ability to capitalize on market inefficiencies through in-depth fundamental research due to a lack of broad research coverage by Wall Street.
- There is greater opportunity to find “undiscovered” companies than in the crowded space of the most commonly followed stocks. There are also more small-cap stocks in which to invest relative to those generally considered large cap, thus providing a larger universe of potential investments.
Our Research Process:
Evaluating companies requires a significant amount of time. A primary component of the process is an assessment of the strength and integrity of the senior management team. This is usually achieved through one-on-one discussions with management, conferences and/or company visits. Discussions with company officers focus on learning the evolution of the company, its future goals, formal planning process, competitive strengths and weaknesses, and depth of management.
Additionally, we review SEC filings, company generated reports and third-party research. We also seek out industry professionals who may be able to provide valuable insight from a competitor/supplier viewpoint.
From this mosaic of information we conduct an independent analysis of earnings and valuation to estimate a likely return from an investment. Holdings and candidates are screened and ranked on a regular basis.