SMID Cap Growth

At Chartwell, we believe you can locate opportunities not only in traditional sectors, but also in unexpected corners of the market, where other growth managers rarely venture. Rather than restrict ourselves to investing in only traditional growth stocks, we broadly diversify and invest in undervalued growth companies wherever they can be found.

Yet we also believe that simply emphasizing valuation is not enough. We seek to purchase those companies most likely to realize their full potential sooner, not later. To this end, we systematically incorporate techniques to find the inflection points --- indicators that undervalued growth stocks are in the early stages of achieving their true potential. Our uncommon approach to growth investing has resulted in good performance and lower tracking error, relative to our peers.

For clients in our Smid Cap Growth portfolio we invest in select set of growth companies. These businesses demonstrate strong increases in earnings per share. More significantly, they continually broaden, deepen and enhance their fundamental capabilities, competitive positions, product and service offerings and customer bases. We invest in, not merely own the stocks of, these distinguished companies for an intermediate time horizon. We initiate investments opportunistically, when the stocks are attractively valued, yet concentrate holdings in companies best positioned for most rapid growth. Our portfolios focus on a narrow set of such investments. Chartwell Partners’ discipline in applying this philosophy will define our success.

Our investment process integrates the efforts of several kinds of specialists: quantitative analysts, fundamental analysts and a senior Portfolio Management Team.

• Quantitative analysis: Our process begins with a universe of securities in a market capitalization range from $500 million to $7.0 billion that are statistically inexpensive versus the market (Russell 2500 Growth) and possess the highest potential total return characteristics based on a range parameters. Our focus list continues to narrow as we identify companies priced with secular, sustainable growth, a sound economic foundation and proven management expertise. A careful assessment of a company's price history uncovers where they are positioned in their current valuation cycle and from this we can determine those stocks that offer attractive risk/reward characteristics.
  
  
• Fundamental analysis: The first stage of our fundamental research evaluation process concentrates on developing a composite valuation assessment, combining multiple valuation measures along with price to EBITDA, return on equity, return on assets and return on investments. Using this broad quantitative snapshot avoids the dependence on a single valuation tool, which may unduly focus the portfolio or miss important elements of company valuation. Next, we uncover the causes of the perceived undervaluation and answer the question, "Is this a high growth company that falls between the momentum and growth at a reasonable price continuum?" A clear understanding of the cause is vital; only then can we determine what changes must occur to realize the company's valuation potential. The most decisive element of our research process is an appraisal of the company's growth opportunity, separating those companies real growth potential from those that are merely growth performers with high growth valuation metrics.
  
  
• Portfolio Management: The final portfolio is constructed primarily as a bottom-up residual of stock selection. We weigh a number of factors including fundamentals, timing of catalysts, and growth prospects when determining portfolio positions. In symmetry with our buy process, valuation at the high end of a company's historical range indicates an unfavorable risk/reward profile and therefore a potential sell. Deterioration in fundamentals or dissipation of the change elements prompts us to sell.

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*5 year relative to the Russell 2500 Growth Index
Statistics as of 12/31/16