Atlanta Capital High Quality Small Cap

Overview
Investment Approach
Investment Professionals

Overview

Strategy Facts

Capability:	Active Fundamental Equity
Strategy Inception:	April 1992
Benchmark:	Russell 2000® Index

Strategy Facts

Capability:	Active Fundamental Equity
Strategy Inception:	April 1992
Benchmark:	Russell 2000® Index

Summary

The High Quality Small Cap strategy is guided by a fundamental core approach that seeks to invest in small-cap companies in strong financial condition with equities priced below our fair value estimate.

Investment Approach

Philosophy

We seek to invest in high quality companies with a demonstrated history of consistent growth and earnings stability. The portfolio is managed with a fundamental, bottom–up investment process, looking for businesses with innovative models, quality management, strong free cash flow, and high returns on invested capital. Historically, this process has produced a diversified portfolio that exhibits solid up-market capture, minimized participation in declining markets, reduced volatility, and high active share.

Differentiators

The Power of Compounding

We defined risk as losing client capital. How you perform in down markets has an outsized impact on your total return. By focusing on a small group of high quality companies with consistent and stable earnings growth, we seek to perform well in rising market, and to protect in declining markets. Over a full market cycle, this should allow us to outperform our benchmark with lower volatility and market risk. The real secret to long-term investing success is not what you make, it’s what you keep.

The Desire to be Different

The only way you can beat a benchmark is if you are willing to be different from it. Our high quality investment process is designed to do just that. We seek to build a focused portfolio of high quality companies where position and sector weights are a byproduct of stock-specific conviction. Our investment process is also designed to take advantage of a much longer investment time horizons. As a result, our portfolio will typically have a very high active share versus our benchmark with very low levels of turnover versus our peers.

Established Team that is Invested

Our strategies have been continuously managed by our stable and experienced investment team. A significant amount of the team’s compensation is tied directly to the long-term success of our clients. And while we do not require it, all the members of the investment team have substantial personal investments in our products.

Investment Process

	Construct a focused, diversified portfolio with a focus on companies with a demonstrated history of consistent growth and stability in earnings, strong free cash flow, and high returns on invested capital.
	Emphasize companies with management teams that have proven records of effective capital allocation and incentive structures that are aligned with shareholders.
	Calculate fair value by evaluating a company's historical valuation ranges and private market value.
	Sell a company if a more compelling investment opportunity materializes, there is a change in the investment thesis, or valuation becomes excessive.

Investment Professionals

William O. Bell IV

Managing Director

29 years industry experience

W. Matthew Hereford

Managing Director

29 years industry experience

Michael Jaje, CFA

Managing Director

29 years industry experience

Charles B. Reed

Managing Director

35 years industry experience

RISK CONSIDERATIONS

Equity: The value of investments held by the Strategy may increase or decrease in response to economic, and financial events (whether real, expected or perceived) in the U.S. and global markets. The value of equity securities is sensitive to stock market volatility. Smaller companies are generally subject to greater price fluctuations, limited liquidity, higher transaction costs and higher investment risk than larger, more established companies.

There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.

A separately managed account may not be appropriate for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing. A minimum asset level is required.

For important information about the investment managers, please refer to Form ADV Part 2.

The views and opinions and/or analysis expressed are those of the author or the investment team as of the date of preparation of this material and are subject to change at any time without notice due to market or economic conditions and may not necessarily come to pass. Furthermore, the views will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date of publication. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) and its subsidiaries and affiliates (collectively “the Firm”), and may not be reflected in all the strategies and products that the Firm offers.

OTHER CONSIDERATIONS

The indexes are unmanaged and do not include any expenses, fees or sales charges. It is not possible to invest directly in an index. Any index referred to herein is the intellectual property (including registered trademarks) of the applicable licensor. Any product based on an index is in no way sponsored, endorsed, sold or promoted by the applicable licensor and it shall not have any liability with respect thereto.

The Russell 2000® Index is an index that measures the performance of the 2,000 smallest companies in the Russell 3000 Index.

The information presented represents how the portfolio management team generally implements its investment process under normal market conditions.

Atlanta Capital is part of Morgan Stanley Investment Management. Morgan Stanley Investment Management is the asset management division of Morgan Stanley.