Special Situations “S2”

Objective

The S2 strategy seeks to provide clients superior long-term capital growth by investing in a concentrated portfolio of special situations primarily sourced from the microcap universe where we can identify significant inefficiencies.

Guiding Thoughts

• We believe that successful investing involves the practice of applying a consistent philosophy and process over time.
• We believe that earnings growth drives stock prices and that an acceleration in growth due to improving fundamentals drives superior returns in the market.
• These “post venture, pre-institutional” companies can generate Private Equity-type returns with Public Market-like liquidity.
• Higher correlation to company earnings means lower market correlation and less beta when compared to most, if not all, investible benchmarks.  We are benchmark agnostic.
• The microcap universe has structural factors that make it a target rich environment for our direct fundamental research efforts.

Process

• We employ bottom-up direct fundamental research process with stock selection driving active returns for our clients.
• We look to “Be there early” – we invest in stocks that are under-followed, under-owned, and overlooked by Wall Street. Our median market cap is typically less than 100 million.
• We’re investors not traders – core portfolio positions are typically held for 18 months or longer. We have low position turnover during “normal” market conditions – usually less than 40%.
• We seek to identify an idea that we believe is both, inefficiently priced and has an identifiable catalyst that will drive an acceleration in growth and profitability.

Sell Discipline

• Excessive valuation
• Deterioration in company fundamentals
• Catalyst event fails to drive re-valuation over an acceptable time frame

Investment Team

• Scott Billeadeau, CFA – Lead Portfolio Manager
• Russell Last, CFA – Trading
• Walter Ramsley – Research Consultant to Walrus

Risk Management

• Employ rigorous fundamental analysis to a diversified portfolio of 20-30 equity holdings.
• Ongoing communications with Management.
• Actively manage portfolio liquidity.
• Execute a low turnover strategy – Make fewer decisions with higher conviction!

Characteristics

_{as of 3/31/2019 (source: FactSet Research Systems)}

Top Holdings

_{as of 3/31/2019 (source: FactSet Research Systems)}