Investment
Style/ Philosophy
Pinnacle’s U.S. Equity Small/Mid Cap product is based
on the concept that undervalued securities can be found in
any sector of the equity market. While we utilize several
traditional measures of valuation, we believe that these traditional
measures, while still useful, cannot completely address all
of the opportunities that exist in the domestic equity market
today. Indeed, over the last thirty years, the security markets
have changed, accounting standards have been redefined, and
sectors that never existed before now drive market performance.
Pinnacle’s Small/Mid Cap equity strategy strives to
utilize both traditional methodologies and innovative valuation
measures to build diversified portfolios which deliver superior
performance. Regardless of the valuation approach, we employ
a consistent bottom-up style that is based on our proprietary
fundamental analysis. For a portion of the portfolio, we utilize
traditional valuation measures such as low price/book ratio
and low price/sales ratio. When we identify attractive securities
using these measures, we also look for a catalyst that indicates
a change or improvement in the fundamental business health
of the company. As opposed to many other managers, we do not
focus on a low price/earnings ratio, as we believe that this
can often times be a misleading indicator. When a firm has
a low P/E, we have found that historically it can often represent
the “peak” of a firm’s earnings cycle and
actually signal an upcoming decrease in earnings.
Investment
Process
We begin with traditional value measures: Price/Book,
Price/Sales. Then, we analyze Price/Cash Flow and Price/Private
Market Value for expanded valuation companies. Our universe
of potential holdings consists of securities with a market
cap between $100 million and $3 billion (at the time of purchase).
We apply Pinnacle’s expanded and traditional valuation
analysis which yields a watch list of 200 to 300 names at
any one point in time. If a company has a positive catalyst,
it is added to the portfolio which normally contains 50-70
issues. Purchase decisions are based on company and industry
fundamentals, valuation, and fulfillment of our minimum investment
criteria. Our Small/Mid Cap strategy is designed to be a long-term
holder of securities. Our sell discipline is comprised of
three categories: valuation, company fundamentals and portfolio
diversification.
Client
Communication
We encourage client meetings as frequently as needed
in order to build the trust that is essential in any client-advisor
relationship. We generally have met with clients one or two
times a year, depending on the client’s needs. Also,
conference calls, written updates, etc., are important elements
of our client communication strategy. Peter Marron, Senior
Portfolio Manager and Ken Sobolewski, our Director of Marketing,
would be the primary contacts for this account. Two senior
professionals will be assigned to the account from the small/mid
cap team. Our Director of Marketing will also service the
account and coordinate the client’s service strategy.
These professionals will be available for all meetings related
to the account throughout the year. Clients will also have
access to many other members of the Pinnacle team to assist
them with various issues, such as: contracts, billing, and
operational issues.
Team
While Pinnacle has managed small/mid cap portfolios since
its inception in 1984, responsibility for the product was
changed beginning in 1996. At that time, the small/mid cap
team was formed, with Peter Marron assigned as senior portfolio
manager. Since 1996, this team has had the sole responsibility
for the portfolio. Other members of the small/ mid cap team
include John T. Passios and Kimon Passios.
