Fitzpatrick: In terms of philosophy, there are two key tenets. The first is that we’re opportunistic investors. We believe our approach benefits more than a pure growth strategy would from more sources of alpha and better diversification. By that, I mean there are times when you might see traditional growth investors focused on just a handful of sectors, in which certain stock ideas may be exploited quickly.
With our opportunistic approach, on the other hand, we don’t shy away from secular growth but we do want to sell at an appropriate valuation. We also believe you can find growth in less trafficked areas—which could be cyclical sectors or more stable sectors. This ability to generate growth through capital allocation in a typical or more stable sector is what provides that investment opportunity. So, it’s really just being opportunistic and trying to take advantage of as wide an opportunity set as we can.
The second tenet is our firm belief that a strong management team is a key driver of shareholder value creation. This is very important in the small- and mid-cap universe, where management quality varies greatly. We focus on teams that apply a coherent strategy and have been able to execute on and allocate capital to it.
Elia: While looking to uncover high-quality company management teams, we’ll ask questions like, “What is your competitive advantage?” We’re not just looking for the answer, per se; we’re also interested in how honest of an assessment they’re able to make about their own capabilities. We want to know how they envision their position within the marketplace and what they see as their opportunity set over time. In short, we are looking for their view on how they will create value for shareholders.
Some other questions that we ask include: “What opportunities are you exploiting in the marketplace?” “How do those opportunities build upon your strengths?” and “How are you fighting against some weaknesses or structural issues within your industry?” Essentially, we’re trying to get a handle on their vision for where they are and what they have the potential to do in the marketplace.