Small cap stock
Interview: Aurora Small Cap Value Fund---Evascu, Caroline---Portfolio Manager
joins us now from boston. caroline, thank you for joining us today. what is a small cap stock in our definition to get this out of the way first.
>> we look at it compared to the index, the russell 2000 value. the largest capitalization right now is $3 billion.
>> do you have a bottom line in terms of size, it won’t go below?
>> no, generally from a liquidity standpoint it’s hard to do less than $300 million but we don’t have a formal minimum.
>> you’re look figure out-of-favor stocks but you don’t go through groups but screen through the 2,000 stocks and come up with underperformers?
>> exactly, we’re total bottom-up stock pickers here and the weightings are a byproduct of that.
>> if i look at the performance of a small caps versus midcaps versus large caps over the near and medume terms, i put together a chart here, the white line is the small cap index year to date, the best performer by 4.2% versus 3.7 for the midcaps and the s&p 500, up .75%. but the volatility is the question. to get there, to get to those returns you have to take a heck of a ride. the question is, why is it worth it when i can get the same thing in a midcap stock?
>> over the long term i do think small cap stocks have outperformed midcap stocks over the long term and also these stocks have smaller bases, are coming out of a recession period and will have higher growth from a smaller base.
>> one of the areas where you are finding value is in retailing and in particular, a company called furniture brands. what is it about furniture brands. and you do own the stock in your portfolio, already.
>> yes. we take the bottom-up approach and are focused on inexpensive valuations, free cash flow and multiple catalysts and this stock has all three of those trading at 12 to 13 times next year’s earnings, generating a lot of cash with a strong balance sheet.
>> one of the best performing groups over the past six months or so has been energy stocks. you like energy services. small cap energy names, anything come to mind?
>> yeah. we own a basket in the portfolio. we own hannover compressor and w.h. energy. we’ve trimmed back a lot of our energy companies but are overweight the group.
>> you are also seeking value in retail names and are confident we’re going into a very promotional environment or are already in one. do the inventory numbers from today cause you concern, the fact they’re not rising as fast as some hoped?
>> we don’t really pay attention to that macro stuff so we’re looking at individual companies. we’re very company-specific and many of the companies we’re invested in have spent two or three years cutting costs so they’ll see earnings growth on the bottom line.
>> as far as software stocks, you’re picking and choosing?
>> we’ve been adding to software. we start small positions and build them over time so there’s nothing i’d really highlight today but we find value opportunities in software.
>> are you saying that’s an area you would avoid?
>> no, i’m sorry, we’re adding to those and finding a lot of opportunity.
>> while we’re talking about avoidance, what don’t you like?
>> you know, last year, 2003, a lot of the cyclical groups were strong, durables, autos and transportation. those are names we would be trimming right now. nothing specific comes to mind but all the names that were strong last year, we’ll start trimming those in the coming months.
>> from the state street research aurora fund, caroline evascu, and our thanks to you. we’ll have you back again and good luck this year.
>> thank you.
>> two wall street firms have been picked to help manage a $5 billion i.p.o. in china. we’ll tell you who it is and what it’s all about coming up next.
