Renaissance Small Mid Growth Strategy

Renaissance Investment Management’s ("Renaissance") universe for the small mid cap growth strategy consists of  2,500 domestic small- and mid-capitalization companies (the next 2,500 companies, by market capitalization, after the largest 500). This universe is initially screened for those companies demonstrating above-average profitability and strong financial characteristics.

Typically, this leads to a smaller universe of about 800 companies, which are then subjected to further analysis. Specifically, these companies are scored and ranked based on a series of quantifiable factors that Renaissance believes are important in identifying good investment opportunities — historical growth, future earnings expectations, valuation, and fundamentals.

The stocks within the top 20% are considered eligible for inclusion in the portfolio and are subjected to traditional bottom-up fundamental research analysis. Ultimately, the 50 best investment opportunities derived from this fundamental research are included in client portfolios.

Ideal Investment

The ideal company exhibits many of the following traits:

• Solid, high quality growth companies
• Typically sells at reasonable valuation levels
• Experiencing positive changes in earnings expectations
• Good business momentum and accelerating earnings growth
• Supported by above-average corporate profitability
• Proven record of profitability
• Strong balance sheet

Portfolio Construction

Portfolio management:

• Quantitatively research the 2,500 small- and mid- cap companies in the U.S.
  • Each stock is screened for above average profitability and below average level of debt
  • Resulting 800 stocks are scored based on growth and momentum factors, earnings expectation factors and valuation factors
• Conduct traditional fundamental research on the 160 highest ranked (top 20%) stocks to ensure companies exhibit the desired attributes. Each company is analyzed based on:
  • Reviews of annual reports and news stories about the company
  • Reading research reports that are issued by analysts
  • Talking to management
  • Gaining an understanding of how the company has generated its growth historically and what will drive growth going forward.
• Only the most attractive 50 companies are chosen for client portfolios.

  Sell Discipline

  The investment team will make a sell decision when:
  

  • A security falls below the second quintile (below 40%) on the basis of their scoring and ranking process
  • A security has disappointing earnings relative to their expectations
  
  

  Investment Process Chart