Small Cap Value Q1 2017


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40 to 60

companies in our fully invested, concentrated portfolio

8

year track record

$710

million Small Cap Value assets under management as of 3/31/2017

106%

upside market capture ratio since inception (8/1/08)

73%

downside market capture ratio since inception (8/1/08)

  • Guides

    Philosophy

    • Fundamentals drive stock prices
    • Capital preservation improves returns
    • Culture shapes investment decisions
  • Shapes

    Process

    • Thorough, proprietary research by career analysts
    • Focus on valuation and risk controls
    • Team environment – group discussion/analyst decision
  • Generates

    Portfolio

    • Concentrated and diversified
    • Long-term/low turnover
    • Fully invested/limit on cash
  • Performance

    • Consistent pattern of results
    • Objective: Outperform the benchmark over the longer term

Small Cap Value

Quarter 1 2017

Equity Composite Performance

  • Cooke & Bieler - Gross of fees
  • Cooke & Bieler - Net of fees
  • Russell 2000® Value Index
Periods Ending 3.31.17 Source: Factset and Russell® Past Performance is not indicative of future results Taxable client returns may vary from the results above due to tax-efficient portfolio management and higher fee schedules that result from lower portfolio minimums. Click for additional C&B Small Cap Value Performance Disclosures

Quality Characteristics1

  • C&B Small Cap Value
  • Russell 2000® Value Index*
ROC 5 Year Avg. Cash Interest Coverage Debt/EBITDA Forecasted P/E** P/Normalized Earnings**
6.1% 9.1x 2.3x 16.0x 13.4x
3.2% 6.2x 2.6x 18.1x
ROC 5 Year Avg. 6.1% 3.2%
Cash Interest Coverage 9.1x 6.2x
Debt/EBITDA 2.3x 2.6x
Forecasted P/E** 16.0x 18.1x
P/Normalized Earnings** 13.4x
Period Ending: 3.31.17 * Median ** Weighted Harmonic Mean Source: Factset and Russell®

Portfolio Attributes1

  • C&B Small Cap Value
  • Russell 2000® Value Index
# Holdings Market Cap ($B) Range Market Cap ($B) WTD Avg. Annual Turnover
40 0.4 - 6.5 3.0 42%
1,352 0.04 - 13.7 2.1
# Holdings 40 1,352
Market Cap ($B) Range 0.4 - 6.5 0.04 - 13.7
Market Cap ($B) WTD Avg. 3.0 2.1
Annual Turnover 42%
Source: Factset and Russell®

Top 10 Holdings1

Gildan Activewear Inc. 4.4%
Hill-Rom Holdings Inc. 4.3%
FirstCash Inc. 4.1%
PGT Innovations Inc. 4.0%
Quanex Building Products Corp. 3.8%
Mednax Inc. 3.7%
Steelcase Inc. 3.3%
RenaissanceRe Holdings Ltd. 3.3%
Winnebago Industries Inc. 3.2%
United Natural Foods Inc. 3.1%

Top 10 Holdings1

Gildan Activewear Inc. 4.4%
Hill-Rom Holdings Inc. 4.3%
FirstCash Inc. 4.1%
PGT Innovations Inc. 4.0%
Quanex Building Products Corp. 3.8%
Mednax Inc. 3.7%
Steelcase Inc. 3.3%
RenaissanceRe Holdings Ltd. 3.3%
Winnebago Industries Inc. 3.2%
United Natural Foods Inc. 3.1%

Sector Weights1

  • C&B Small Cap Value
  • Russell 2000® Value Index
  • Consumer Discretionary

    C&B Small Cap Value
    22.0%
    Russell 2000® Value Index
    9.6%
  • Consumer Staples

    C&B Small Cap Value
    3.1%
    Russell 2000® Value Index
    2.8%
  • Energy

    C&B Small Cap Value
    1.9%
    Russell 2000® Value Index
    4.6%
  • Financials

    C&B Small Cap Value
    20.1%
    Russell 2000® Value Index
    32.3%
  • Health Care

    C&B Small Cap Value
    8.0%
    Russell 2000® Value Index
    4.7%
  • Industrials

    C&B Small Cap Value
    25.5%
    Russell 2000® Value Index
    13.7%
  • Information Technology

    C&B Small Cap Value
    6.5%
    Russell 2000® Value Index
    10.3%
  • Materials

    C&B Small Cap Value
    6.7%
    Russell 2000® Value Index
    4.9%
  • Real Estate

    C&B Small Cap Value
    Russell 2000® Value Index
    10.2%
  • Telecommunication Services

    C&B Small Cap Value
    Russell 2000® Value Index
    0.6%
  • Utilities

    C&B Small Cap Value
    Russell 2000® Value Index
    6.3%
  • Cash

    C&B Small Cap Value
    6.2%
    Russell 2000® Value Index
Source: Factset and Russell®

Market Commentary

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Small cap value stocks paused in the first quarter following a very strong 2016. Markets struggled to process and predict the impact of legislative outcomes across a variety of industries. As a result, sectors that did well in the post-election surge took a step back, and others, particularly Health Care and Information Technology, advanced. Slightly lower interest rates (despite the Fed’s December tightening) supported the stock prices of more highly levered companies and Utilities. Non-earners also did well, an environment well-suited neither for Cooke & Bieler’s investment style nor the portfolio’s current positioning. Growth also outperformed value, standing in clear contrast to the trends observed in Q4 2016.

As economic cycles mature, divergence in operating results and stock price performance increases, providing opportunities for active managers. Such opportunities can be harder to find in early portions of market cycles, when stock prices tend to be driven by a single factor, such as Quantitative Easing in the most recent case. In our view, great businesses with strong balance sheets, the ability to reinvest for growth, and that are not reliant on policy decisions are the best starting point for a successful investment strategy. These types of companies go in and out of market favor, but they also tend to quietly and steadily compound value.

Additional Cooke & Bieler Small Cap Value Disclosures