Our Small Cap Value investment process builds a stable, low turnover portfolio for each of our Small Cap Value clients, with the goal of providing attractive risk-adjusted total returns over the long term. A typical Phocas Small Cap Value Equities portfolio consists of 80 - 125 stocks, diversified across the majority of industrial sectors.
  1. Phocas begins with the entire universe of U.S. public equities.
  2. We use decile rankings to eliminate the micro cap and large cap stocks as well as illiquid securities.
  3. For operating companies, we screen further to examine the companies in the two lowest deciles based on price-to-book, price-to-earnings, enterprise value-to-EBITDA, and price-to-sales based on historical sector price correlation. We also look for positive EBITDA or cash flow, and adjust for balance sheet risk for GIC sectors that show high historical price performance correlation. For financials and REITs, we apply proprietary industry models to eliminate unattractive equities.
  4. We conduct a quantitative analysis of each company, focusing on:
    Balance sheets
    Cash flows
    Income statements
    Ratio analyses
  5. We conduct a qualitative analysis of each company, focusing on:
    Governance
    Industry analyses
    Quality of company management teams
    Contact with company management teams
    The companies' mergers and acquisitions histories ad prospects
    Catalysts for stock price appreciation
  6. Next, we conduct proprietary modeling to identify the stocks that will be in the portfolio. This consists of the following analyses:
    Discounted cash flow
    Asset valuation
    Sum-of-the-parts
    Price-to-book, price-to-earnings, enterprise value-to-EBITDA, and price-to-sales ratio analyses
    Relative multiples
    Proprietary Phocas Financial Corporation financials model
    Proprietary Phocas Financial Corporation REIT model
  7. Finally, we construct diversified client portfolios:
    Weighting of sectors is based on individual security valuation levels and appreciation prospects.
    Representation generally in all important sectors.
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