Without employing leverage or shorting, ABLS Small-to Mid-Cap Equity invests in a chosen number of out-of-favor and/or under-followed small- and mid-cap companies. The strategy typically invests in eight to fifteen enterprises with a three-to-five-year timeframe. If an investment's value rises over its estimated intrinsic worth*, it's usually sold.
We follow a systematic investment process and identify a collection of well-positioned firms that are selling at a significant discount to our estimate of underlying value using stringent criteria. We conduct thorough due diligence on each portfolio company and focus our investments on companies and industries that we are familiar with, such as information and software, outsourced business services, cable television and programming, consumer product manufacturers or distributors, and financial services. We keep track on our investments after they've been made through regular discussions with industry participants and active communication with the company's management team.
Criteria for Investment
Companies with the following business, managerial, financial, and valuation characteristics, we feel, are well positioned to create value for shareholders in a variety of economic and market circumstances.
Business Characteristics
- Products and services that are essential
- Customer loyalty is high.
- Competitive advantages that last
- Recurring revenue at a high level
- High rates of return on investment
Attributes of Management
- Operators who are trustworthy
- Capital allocation that is favourable
Financial Characteristics
- Free cash flow and a strong balance sheet
Attributes of Valuation
- Intrinsic value* was calculated using cautious estimates.
*ABLS's estimate of the present value of cash that a company can generate and deliver to shareholders over the course of its remaining life.
-The strategy may take big positions in a small number of issuers, thus increasing the risk of price volatility.
-Investing in small or medium-sized businesses carries a higher risk and volatility than investing in larger, more established businesses.
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