The Unloved Turnaround Stories

The Small Cap Intrinsic Value (SCIV) strategy was the original founding strategy of ICM. It begins with the search for companies whose stock ICM believes is trading at a significant discount to what we believe to be the true worth of the company.

These companies usually have either fallen into disfavor among investors or are under-researched. Two different but complementary methods are used to facilitate this search. The first method is economic sector driven (top-down). ICM identifies the broad sectors of the equity market it believes may be under-valued and then seeks to identify individual companies within those sectors that meet our investment criteria. The second method seeks to discover inefficiently priced stocks regardless of how their respective sectors are valued (bottom-up). These two approaches are combined in varying proportions depending on market conditions.

Regardless of which approach is used, ICM then applies fundamental research analysis to those candidates. Generally, direct contact with management is augmented with periodic discussions with analysts, industry experts, customers, suppliers and competitors. The objective of this process is to position clients in a portfolio of these overlooked stocks in anticipation of the market’s initial discovery or rediscovery of their investment value.

The universe from which ICM’s SCIV investment team selects is essentially that of domestic companies within the market capitalization range of the Russell 2500™ index. We use common stocks and occasionally preferred stocks or convertible bonds. There is no use of options in this strategy. Initial individual weightings in the SCIV strategy are typically between 1% – 2.5% and are augmented based on the increased confidence level in our projections. Portfolio sector weightings are determined by the number of individual opportunities and the prospect for re-accelerating earnings within the sector, typically not to exceed a maximum of 25%. A large equity institutional portfolio invested in the SCIV strategy will typically have 35-40 individual holdings.

The strategy utilizes the Russell 2500™ and Russell 2500 Value™ Indices as benchmarks. ICM generally requires a minimum investment of $100,000 to open an individually managed SCIV account.

Portfolio Characteristics Small Cap Intrinsic Value
Primary Market Capitalization $100 Million to $5-7 Billion
Number of Companies Held Approximately 35-40 Per Portfolio
Typical Weighting Per Holding 1-3% of the Portfolio Value at
the Time of Purchase
Expected Holding Period 18-48 Months
Average Portfolio Turnover 35-60% Annually
Recommended Benchmarks Russell 2500™ Index
Russell 2500 Value™ Index
Minimum Account Size $100,000