smid cap value equity p t - schneider capital · pdf filecio role and responsibilities ......

SMID CAP VALUE EQUITY PRESENTATION TO

James F. Woods, Jr.

3Q13

Managing Director

2

PRESENTATION OUTLINE

Firm Overview

Investment Philosophy

Investment Process

Performance Summary

Portfolio Review

Agenda and discussion topicsAgenda and discussion topics

3

FIRM PROFILE

Value investing is our sole focusValue investing is our sole focus

Founded in 1996; 100% employee-owned

$1.7 billion under management (09/30/13);

Deep expertise in a single investment discipline

Experienced team of investment professionals

Assets Under Management

Large Cap Value55%

Mid Cap Value4%

Small Cap Value13%

Smid Cap Value6%

Multi-Strategy Value22%

4

15 years average industry experience15 years average industry experience

HIGHLY QUALIFIED PROFESSIONALS

CIO role and responsibilities New idea generation Directs analysts’ research efforts “Hands-on” portfolio management Final decision making

Arnie Schneider III, CFACIO & Portfolio Manager

Prasanth AthipatlaTechnology, Health Care,

Telecommunications

Gary Soura, CFAAerospace, Transportation,

Utilities, Retail

Chris GillespieCapital Goods, Coal, Materials,

Consumer StaplesJoe Plevelich, CFA

Energy, Regional Banks,Community Banks

Analyst role and responsibilities Industry specialization and expertise Fundamental stock specific research Perform detailed financial analysis Probe investment case in depth

Rob Maton, CFAFinancials, Real Estate

5

CONSISTENT INVESTMENT PHILOSOPHY

Strong convictions support the investment processStrong convictions support the investment process

Produce solid long-term performance through investing in undervalued companies with potential for positive fundamental change

Engage in rigorous independent research that challenges consensus views and conventional thinking

Possess the confidence to express our insights in focused portfolios that reflect our best ideas

Sustain a thriving corporate culture that is built upon a single investment discipline, and concentrate all our energies on what we do best

6

Five elements drive investment successFive elements drive investment success

PROVEN INVESTMENT PROCESS

Flows from a productive and creative researcheffort

New idea generation

Independent analysis

Ranking system

Portfolio construction

Rigorous sell discipline

Establishes an ambitious return hurdle for newholdings and factors in downside risk

Enables the best ideas to meaningfully impact performance

Captures gains and helps make mistakes lesscostly

Identifies undervalued securities with potential for positive fundamental change

7

Identify promising opportunities that challenge consensus views Identify promising opportunities that challenge consensus views

PRODUCTIVE IDEA GENERATION

Daily effort by the CIO to uncover new ideas

Experience and expertise in a wide range of companies and industries; e.g., technology

Utilize a variety of databases, publications and contacts

Employ database screening on a limited basis

Analysts investigate high-potential candidates

New idea generation


Ranking system



8

SOLID RESEARCH FOUNDATION

“Is it cheap? Do we anticipate positive change?”“Is it cheap? Do we anticipate positive change?”

Company-specific situations Change in leadership

Growth initiatives

Lower cost structure

Timely share repurchases

Industries at a cyclical bottom Constrained capacity or supply

Rebounding demand

Recovering pricing and margins

Fewer competitors

Research Output Identify drivers of fundamental improvement

and earnings recovery

Comprehensive financial models

Objective earnings and valuation estimates

New idea generation


Ranking system



9

EFFECTIVE RANKING SYSTEM

New purchases must enhance expected return of portfolioNew purchases must enhance expected return of portfolio

In-depth analysis determines a target price for current holdings and ranks expected returns from high to low

New purchases must rank above median in appreciation potential

Upside potential is weighed against stock-specific risk assessment focusing on the balance sheet and stress testing

Final decisions are made by the CIO

Projected EPS x Projected P/E = Target Price

(Target Price - Current Price) x 100

(Current Price)= % Appreciation

Valuation Ranking

Median

Accept

Reject

High

Low

New idea generation


Ranking system



10

ACTIVE PORTFOLIO CONSTRUCTION

Best ideas will have a meaningful performance impactBest ideas will have a meaningful performance impact

Portfolio level

55-70 holdings

Cash level generally 1%-5%

Committed to our process throughout investment cycle

Industry/security level

Individual security weights generally 1%-5%, at cost

Weights are determined by upside potential, stock-specific risk, and confidence level

Decisions are based on stringent investment criteria, not benchmark tracking

New idea generation


Ranking system



11

RIGOROUS SELL DISCIPLINE

Capitalize on success and make mistakes less costlyCapitalize on success and make mistakes less costly

Security reaches pre-determined price target

New idea emerges with superior investment potential

Price appreciation lifts company or industry exposure above threshold

Underlying investment case is permanently diluted or delayed

New idea generation


Ranking system



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An approach with distinguishing qualitiesAn approach with distinguishing qualities

Deep value investment discipline

Productive new idea generation

Emphasize fundamental research insight

Anticipate positive change

Focus on company-specific opportunity/risk

Nimble and streamlined decision process

Lukewarm commitment to deep value

Struggle to prune portfolio laggards

Rely on database screening

Depend on reversion to the mean

Inclined to “hug the benchmark”

Decision making encumbered by committees

VIEWING THE VALUE WORLD DIFFERENTLY

Defining characteristics of Schneider Capital

Common features of value managers

13

As of September 30, 2013

PORTFOLIO CHARACTERISTICS AND TOP TEN HOLDINGS (SUPPLEMENTAL INFORMATION)*

Top Ten Holdings

* The information provided above supplements the Smid Cap Value Composite GIPS compliant presentation provided on pages 20 and 21.

Smid Cap ValueRussell 2500 Russell 2500 Value Index Index

ValuationPrice/Earnings - 1 Year Forecast EPS 14.3x 15.1xPrice/Book 1.2x 1.6xPrice/Sales 0.5x 0.9xEarnings GrowthLong-Term Growth Forecast - I/B/E/S 10.3% 9.7%SizeMarket Cap. - $ Weighted Average $5.3B $3.2B

16.8x2.5x1.1x

13.0%

$3.5BMarket Cap. – $ Weighted Median# Holdings

$1.7B $3.2B$2.9B54 1,691 2,472

Sector weightings, portfolio characteristics, market cap weightings and holdings are based on a representative account. Such data may vary for each client in the strategy due to asset size, market conditions, client guidelines and diversity of portfolio holdings. The representative account is the account in the composite that we believe most closely reflects the current portfolio management style for this strategy.

Frank Russell Company is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. This is a presentation of SCM. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. Frank Russell Company is not responsible for the formatting or configuration of this material or for any inaccuracy in SCM’s presentation thereof.

Name Sector

Chesapeake Energy Corp. Energy 5.9 %SunTrust Banks Inc. Financial Services 5.8Flagstar Bancorp Inc. Financial Services 5.0Meritage Homes Corp. Consumer Discretionary 4.7First Horizon National Corp. Financial Services 4.6Arch Coal Inc. Energy 4.1Peabody Energy Corp. Energy 4.0Officemax Inc. Consumer Discretionary 3.3Regions Financial Corp. Financial Services 3.1Huntington Bancshares Inc. Financial Services 2.7

43.2 %

% of Total

14

Russell 2500 Value Index

Smid Cap Value

% of Total

SECTOR ALLOCATION VS. STYLE BENCHMARK (SUPPLEMENTAL INFORMATION)*

Allocation % as of September 30, 2013


0%

10%

20%

30%

40%

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Con

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Prod

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15

Periods ending September 30, 2013

Tota

l Ret

urn

(Gro

ss o

f Fee

s)LARGE CAP VALUE PERFORMANCE VS. STYLE INDEXSMID CAP VALUE PERFORMANCE VS. STYLE BENCHMARK

Smid Cap Value Composite (gross)

Russell 2500 Value Index

Total Return 3Q13 YTD 1 Year 3 Years 5 Years 10 Years Since Inception(Net of Fees) 7.6% 18.0% 28.5% 10.9% 9.7% 7.5% 10.2%

* Periods greater than one year are annualized; returns include cash and cash equivalents and reinvestment of any dividends or interest income.* SCM’s Smid Cap Value Composite is compared to the Russell 2500 Value Index, a subset of the Russell 2500 Index. Please refer to the Disclosures on page 21 for

a complete description of the Index. * Total returns and other statistical information are preliminary and subject to change following final verification. * Past performance is not indicative of future results.* The current fee schedule is included in this brochure and in Form ADV Part II.* The information provided above supplements the Smid Cap Value Composite GIPS compliant presentation provided on pages 20 and 21.

7.7%

18.5%

29.2%

11.4%10.2%

8.0%

10.7%

6.4%

22.5%

27.6%

17.1%

11.1%10.0% 10.3%

0%

5%

10%

15%

20%

25%

30%

35%

3Q13 YTD 1 Year 3 Years 5 Years 10 Years Since Inception(1/1/97)

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SUMMARY

1. We do one thing and one thing only – deep value equity investing.

2. Consistent investment philosophy and discipline since 1996. 3. Single decision maker – Arnie Schneider – with over 25 years of portfolio management

experience 4. Experienced, dedicated research team – no internal competition for resources. 5. Nimble boutique firm – streamlined information flow enhances timely decision making. 6. Focus on long-term investing – patience and persistence are paramount to our style of

investing. 7. Invest in companies that are selling at a large discount to what we believe is their true

intrinsic value. 8. Invest in companies that we believe have prospects to begin the return to a normalized level

of earnings – not to an unrealistic level of expansion or success. 9. Focused on being the best investment manager, not the biggest – history of closing all

products to new investors to preserve portfolio integrity. 10. 100% Employee owned – no external financial or organizational influences.

17

As of September 30, 2013

SMID CAP VALUE PORTFOLIO (SUPPLEMENTAL INFORMATION)*


Portfolio holdings are subject to change without notice. The portfolio holdings presented represent securities held as of the period indicated, and may not be representative of current or future investments. This material is provided for illustrative purposes only and should not be construed as an offer to sell, or the solicitation of offers to buy, or a recommendation for any security.

COMMON STOCKS COMMON STOCKS

Consumer Discretionary Carnival Corp 1.0 % Materials and Processing Alcoa Inc 0.2 %Lennar Corp. 1.6 % Hecla Mining Co. 0.1 %MarineMax Inc 2.0 % Stillwater Mining Company 0.5 %Marriot International Inc 2.0 % Thompson Creek Metals Co Inc 1.9 %Meritage Homes Corp 5.1 % 2.6 %Officemax Inc 3.6 %Toll Brothers Inc 2.4 % Producer Durables FreightCar America Inc 2.3 %

17.7 % Hudson Global Inc 1.0 %Insperity Inc 1.2 %

Energy Aegean Marine Petrol Network Inc 2.8 % Modine Manufacturing Co 1.1 %Arch Coal Inc 4.4 % Navistar International Corp 0.2 %Chesapeake Energy Corp 6.3 % 5.7 %Peabody Energy Corp 4.3 %Weatherford International Ltd 2.0 % Technology ATMI Inc 1.6 %Willbros Group Inc 1.1 % AU Optronics Corp ADS 1.4 %

21.0 % Aviat Networks Inc 0.9 %Axcelis Technologies Inc 0.4 %

Financial Services Allstate Corp 0.0 % Comverse Inc 0.1 %Assured Guaranty Ltd 1.8 % Insight Enterprises Inc 0.9 %First American Financial Corp 0.7 % Internet Capital Group Inc 0.9 %First Horizon National Corp 5.0 % Intl Rectifier Corp 0.8 %Flagstar Bancorp Inc 5.4 % Kemet Corp 1.1 %Forestar Group Inc 1.4 % ModusLink Global Solutions Inc 0.7 %Hartford Financial Svcs Grp 2.9 % Orbotech Ltd 1.0 %Huntington Bancshares Inc 3.0 % Take-Two Interactive Softw Inc 1.8 %Northstar Realty Finance Corp REIT 2.9 % 11.6 %Redwood Trust Inc REIT 1.2 %Regions Financial Corp 3.4 %Rexford Industrial Realty Inc 0.1 % CONVERTIBLE BONDSStrategic Hotels & Resorts Inc REIT 0.9 %SunTrust Banks Inc 6.3 % Financial Services RAIT Financial Trust REIT 1.5 %

35.2 % LandAmerica Finl Grp Cnv-DFLT 0.0 %1.5 %

Health Care Emeritus Corp 1.1 %Five Star Quality Care Inc 2.8 %Orthofix International N.V. 0.8 %

4.7 % Total (Excluding Cash) 100.0 %

Pct. Assets Pct. Assets

18

Arnold C. Schneider III, CFAPresident, Chief Investment Officer and Principal. Arnie founded Schneider Capital Management in 1996 and has a total of twenty-nine years of investment experience. Arnie was previously a Senior Vice President and Partner of the Wellington Management Company. He started as an analyst in 1983, assumed portfolio management responsibility in 1987, and later became head of the Value team for institutional accounts and a number of mutual fund portfolios. He received a BS in Finance from the McIntire School of Commerce at the University of Virginia and is a past President of the Financial Analysts of Philadelphia.

Prasanth Athipatla Senior Vice President and Principal. Prasanth covers technology, health care and telecommunications. He was previously an Associate in the Investment Banking Technology practice at RBC Capital Markets. Prasanth graduated from the Indian Institute of Technology, received a Masters degree from the University of Illinois, and earned his MBA in Finance from the University of Chicago.

Christopher J. GillespieSenior Vice President and Principal. Chris covers capital goods, coal, materials and consumer staples. He began his investment career in 1999. Prior to joining Schneider Capital, Chris worked at RRH Capital Management and Massachusetts Financial Services. Chris graduated Cum Laude from Boston College with a BS in Economics and received an MBA in Finance from Columbia University.

Robert F. Maton, CFASenior Vice President and Principal. Rob covers financials and real estate. Prior to entering the investment industry in 2002, he was a Vice President at Meadowbrook Insurance Group. Rob graduated from Grand Valley State University and earned an MBA degree from the University of Michigan.

Joseph M. Plevelich, CFASenior Vice President and Principal. Joe covers energy, regional banks and community banks. He joined Schneider Capital in 2004. Joe received a B.S. in Economics with a dual concentration in Finance and Management from the University of Pennsylvania.

Gary P. Soura, CFASenior Vice President and Principal. Gary covers aerospace, transportation, utilities and retail. He was previously a Value team member at Wellington Management, having joined from The Vanguard Group, where he started his career in 1989. He graduated from Pennsylvania State University with a degree in Finance and received an MBA from St. Joseph’s University. .James F. Woods, Jr.Managing Director, Marketing & Clients Services. Jim has over twenty years experience in institutional investment consulting, client service, consultant relations and sales. He has held senior positions at SEI Investments, Pilgrim, Baxter & Associates and Janus Capital Group. Jim graduated from The University of Notre Dame with a BBA in Accounting and earned an MBA in Finance from the Wharton School of the University of Pennsylvania.

EXPERIENCED INVESTMENT PROFESSIONALS

19

Smid Cap ValueOn the first $20 million 0.90%On the next $30 million 0.75%Over $50 million 0.60%

FEE SCHEDULE

20

Smid CapValue CompositeSmid CapValue CompositeDecember 31, 2012

* Composite dispersion has not been presented due to the composite having less than five accounts for the entire year presented.

SMID CAP VALUE COMPOSITE PERFORMANCE DISCLOSURE

Frank Russell Company is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. This is a presentation of SCM. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. Frank Russell Company is not responsible for the formatting or configuration of this material or for any inaccuracy in SCM’s presentation thereof.

Composite Benchmark

Net Gross 3-yr St Dev (%) 3-yr St Dev (%)

2012 29.57 30.19 19.21 2 N/A* 26.60 18.41 $78 5% $1,664

2011 -24.77 -24.46 -3.36 3 N/A* 32.45 24.23 $346 20% $1,765

2010 22.69 23.24 24.82 6 0.18 $518 20% $2,632

2009 58.91 59.68 27.68 7 1.07 $538 19% $2,862

2008 -48.99 -48.76 -31.99 7 1.48 $351 17% $2,059

2007 -12.73 -12.33 -7.27 7 0.40 $771 15% $5,160

2006 23.47 24.07 20.18 7 0.34 $926 17% $5,443

2005 6.18 6.70 7.74 7 0.16 $739 17% $4,271

2004 25.15 25.69 21.58 7 0.23 $750 20% $3,830

2003 72.71 73.41 44.93 7 0.71 $686 32% $2,143

2002 -18.80 -18.46 -9.87 9 0.53 $659 41% $1,596

2001 14.62 15.02 9.74 9 2.40 $836 52% $1,612

2000 23.93 24.35 20.79 9 0.93 $845 73% $1,153

1999 27.82 28.19 1.49 5 N/A* $469 93% $502

1998 -5.62 -5.36 -1.92 3 N/A* $442 98% $450

1997 30.07 30.41 33.09 6 N/A* $1,608 97% $1,656

Composite Dispersion

%

Composite Assets at End

of Period ($Millions)

Percentage of Firm Assets

(%)

Total Firm Assets ($ Millions)

Annual Total Return %Year Russell 2500 Value Index

Number of Portfolios

21

SMID CAP VALUE COMPOSITE PERFORMANCE DISCLOSURE

Disclosure: Schneider Capital Management (“SCM”) claims compliance with the Global Investment Performance Standards (GIPS) and has prepared and presented this report in compliance with GIPS standards. SCM has been independently verified for the periods January 1, 1997 through December 31, 2011.

Verification assess whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and(2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The Smid Cap Value composite has been examined for the periods January 1, 1997 through December 31, 2011. The verification and performance examination reports are available upon request.

1. SCM is an independent investment adviser registered under the Investment Adviser Act of 1940. Registration does not imply a certain level of skill or training. SCM was founded on December 5, 1996 and is 100% employee owned. 2. The Smid Cap Value Composite (the “Composite”) includes all actual, fee-paying, discretionary portfolios with a mandate to invest primarily in common stocks of companies that have value characteristics and market capitalizations that are generally greater than $1 billion but less than the largest company in the Russell 2500 Index at the time of initial purchase. The creation date of the Composite is January 1, 1997. The Smid Cap Value Composite for was formerly named the Value Equity Composite.3. The Smid Cap Value Composite is compared to the Russell 2500 Value Index, a subset of the Russell 2500 Index which consists of the bottom 500 companies (measured by market capitalization) in the Russell 1000 Index and all 2000 companies in the Russell 2000 Index. The Russell 2500 Value Index measures the performance of those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. The returns of the index include the reinvestment of dividends but do not account for transaction costs or other expenses which an investor might incur in attempting to obtain such returns. You cannot invest directly in these indices. 4. The Smid Cap Value Composite is one of several composites managed by SCM. All fee-paying discretionary portfolios, including those portfolio no longer with the firm, are included in at least one composite. SCM's list of composite descriptions is available upon request. 5. Total Firm Assets as used herein consist of the aggregate value of all discretionary and non-discretionary portfolios under management at the end of the measurement period. 6. Rates of return are expressed in US dollars. Composite results reflect the reinvestment of any dividend or investment income and include returns on all cash and cash equivalents. Returns are presented net of any non-reclaimable withholding taxes. Partial year returns have not been annualized. 7. SCM’s policies and procedures for valuing portfolios, calculating performance and preparing a client presentation are available upon request. 8. Composite Dispersion is measured using an asset-weighted standard deviation of gross returns of the portfolios that were included in the Composite for the entire measurement period. For those annual periods with less than five portfolios included for the entire year, dispersion is not presented as it is not considered meaningful.9. Gross of fee returns are presented before management fees and reflect the deduction of direct trading expenses. A Client’s return will be reduced by the advisor fees it will incur in the management of its investment advisory accounts.10. The Smid Cap Value Fee Schedule: 0.90% on the first $20 million; 0.75% on the next $30 million; 0.60% over $50 million. Net of Fee returns reflect the deduction of direct trading expenses and the actual fees as per the investment advisory agreements. Fees paid by certain clients may be different from the current fee schedule. SCM's investment advisory fees are described in Part 2A of Form ADV.11. The three-year annualized ex-post standard deviation measure the variability of the composite (using gross returns) and the benchmark for the preceding 36-month period. The three-year annualized ex-post standard deviation is not required to be presented for periods prior to 2011.12. The performance data quoted above represents past performance; past performance is not indicative of future results.

smid cap value equity p t - schneider capital · pdf filecio role and responsibilities ......

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