Eagleís Small Cap Growth managers employ a rigorous bottom-up stock selection technique to identify dynamic small companies that offer Rapid Growth at Reasonable Valuations. The team targets
key characteristics such as:
- An accelerating earnings growth rate
- Strong management with insider ownership
- Reasonable debt levels
- Price-to-earnings at or below the earnings growth rate
The managers take a deeper look at companies that pass their financial health screens. Because the teamís primary focus is on individual companies, they place the highest value on their own research and analysis. Managers and analysts will comb through financial statements and SEC filings, speak with industry and buy- and sell-side contacts, and typically conduct company visits before deciding whether or not
Understanding a companyís fundamentals, its strengths and competition are one part of the teamís strategy for managing the risks of small-cap investing: price volatility, less liquidity and the threat of competition. The fundís managers diversify the portfolio widely to help reduce the impact of a single holding.
Investments in small-cap companies generally involve greater risks than investing in larger capitalization companies. Small-cap companies often have narrower commercial markets and more limited managerial and financial resources than larger, more established companies. As a result, their performance can be more volatile and they face greater risk of business failure, which could increase the volatility of a fundís portfolio. Additionally, small-cap companies may have less market liquidity than larger companies.
Growth companies are expected to increase their earnings at a certain rate. When these expectations are not met, investors may punish the stocks excessively, even if earnings showed an absolute increase. Growth company stocks also typically lack the dividend yield that can cushion stock prices in market downturns. The companies engaged in the technology industry are subject to fierce competition and their products and services may be subject to rapid obsolescence. The values of these companies tend to fluctuate sharply.