Target Manager Allocation: 20%

Size of Company: Small- and mid-sized companies

Stock-Picking Style: Growth

D'Alonzo invests in stocks of well-financed issuers that have proven records of profitability and strong earnings momentum. Emphasis is placed on companies with a market capitalization of less than $5 billion with a majority of holdings likely to be in companies with a market capitalization of less than $1.5 billion. These companies are likely to be lesser-known companies moving from a lower to higher market share position within their industry groups, rather than the largest and best-known companies in these groups.

D'Alonzo may, however, purchase common stocks of well-known, highly researched mid-sized companies if his team believes that those common stocks offer particular opportunity for long-term capital growth. In selecting investments, D'Alonzo considers financial characteristics of the issuer, including historical sales and net income, debt/equity and price/earnings ratios, and book value. D'Alonzo may also review research reports of broker-dealers and trade publications and, in appropriate situations, meet with management. D'Alonzo and his team give greater weight to internal factors, such as product or service development, than to external factors, such as interest rate changes, commodity price fluctuations, general stock market trends and foreign-currency exchange values. Manager bio.

Target Manager Allocation: 20%

Size of Company: Small- and mid-sized companies

Stock-Picking Style: Value

The objective of Bronchick's fundamental research is to identify the best combination of attractive businesses, valuation, and shareholder-oriented management. His small-cap universe consists of companies between $100 million and $3 billion. Analysis of return on invested capital ("ROIC") or "economic value" generation is the main driver in determining an attractive business. Bronchick and his team of analysts identify potentially attractive "value" opportunities through the use of quantitative screens as well as qualitative industry research (e.g., company visits, trade journals, etc.). The team's valuation analysis relies on a combination of valuation methodologies. Discounted cash flow ("DCF") modeling is the primary valuation tool, but the team also looks at leveraged buyout statistics, private-market comparables, as well as implied market expectations. When building the DCF, the team models out several years, with particular emphasis on the first three years. Beyond that, the team uses a conservative longer-term growth assumption to provide a margin of safety. Assessing and minimizing downside risk is important, so if there is not an adequate margin of safety, the team will not invest. The team also looks at valuation multiples such as price-to-earnings, but uses this data more as a double check rather than as a means to value a stock. The team also conducts scenario analysis to weigh sensitivities to different inputs (e.g., cash flow growth and discount rate) to build a more comprehensive picture of the underlying value and associated risks.

Bronchick places a strong emphasis on company management because he views management as the catalyst for earnings and valuation growth. He and his team of analysts meet with or talk to management of all companies before investing in order to assess how they run the business, their integrity, and their commitment to shareholder value. Bronchick also looks at how management is paid, its motivation to execute, and how they have executed in the past using ROIC as a management scorecard.

Factors that can lead Bronchick to sell a position are overvaluation of stock, a management disappointment, change in fundamentals or change in course of business, superior risk/reward candidate identified.

A material drop in the price of a holding compared to its peer group will prompt a full review of the company by a second analyst in order to determine if a sale is in order or whether an opportunity to add to a position is at hand.Manager bio.

Dennis Bryan

Rikard Ekstrand

Target Manager Allocation: 20%

Size of Company: Small- and mid-sized companies

Stock-Picking Style: Value

The general objective of the team's stock research is to identify stocks from a variety of sources that are cheap relative to their peer group and are characterized by strong balance sheets, solid or improving fundamentals and strong competitive positions in their industry. In addition, they focus on companies that exhibit strong free cash flow, quality management and understandable business strategies. The team also emphasizes above-average return-on-capital though the team tends not to focus on rapidly growing companies that generate very high returns on assets because these companies rarely meet the team's valuation criteria.

Statistical screens that generate research ideas include "new low" lists and various value-oriented measures. In addition to quantitative screens, the team also looks at insider transactions, management changes and spin-offs. Big-picture trends or developments may also lead the FPA team to look at certain stocks or industries.

Specific company research is intensive and involves finding as much information as possible from as many sources as possible. The first step is an in-depth look at the financials to gain an understanding of the operating history, trends and the financial health of a company. Following that, research focuses on gaining an understanding of the company's business model, management quality, growth potential, strengths and weaknesses and competitive position. Because there is a preference for out-of-favor companies there is a particular focus on assessing whether profits are down because of issues that are transitory or permanent. As part of the research process, there is usually contact with management (to assess the quality of the people), competitors, customers and others who are potential sources of information.

The overall assessment of fundamentals is not measured against a standard set of criteria; rather, each is relative to the specific type of business or industry. In general, the team is looking for situations where certainty is high; thus, a business that has strong long-term fundamentals but is temporarily out of favor is typical of a new buy. Since there is a preference for companies with strong free cash flow, it is also important to have confidence in management's ability to add value through the deployment of excess cash.

Valuation is critical to the assessment of each stock-picking opportunity. Valuation assessments usually involve looking at a variety of valuation measures including price-to-earnings, price-to-cash flow, price-to-book value, price-to-sales and enterprise value and market capitalization to total revenue. The valuation measures that are applicable to any particular stock depend on company-specific facts and circumstances as well as broader valuation trends in the industry. In assessing valuations, the FPA team is cognizant of factoring in where the company is in its earnings cycle, its normalized earnings, and how the cycle has played out in the past. In assessing multiples the team studies what multiple levels were in past cycles and considers whether this information is relevant to assessing the potential for future multiples. The valuation assessment then often becomes a function of the expected profitability recovery and multiple expansion from current levels.

The team usually sells stocks for one of four reasons: (1) the stock reaches full valuation; (2) there has been a full profit recovery; (3) a superior alternative value appears; or (4) the company does not perform as expected.Manager bio.

Target Manager Allocation: 20%

Size of Company: Small- and mid-sized companies

Stock-Picking Style: Blend

Weiss invests in stocks of small- and mid-sized companies that are undervalued either because they are not broadly recognized, are in transition, or are out of favor based on short-term factors. Weiss also has the flexibility to invest in the stocks of larger companies if in his opinion they offer the potential for better returns. In seeking attractively valued companies, Weiss focuses on companies with above-average growth potential that also exhibit some or all of the following: low institutional investor ownership and low analyst coverage, high-quality management, and sustainable competitive advantage.

Weiss evaluates the degree of under-valuation relative to his estimate of each company's private market value. This private market value approach is based on an assessment of what a private buyer would be willing to pay for the future cash flow stream of the target company. Based on his experience, Weiss believes that, except for technology and other high-growth stocks, most stocks trade at between 50% and 80% of the private market value. When trading at the low end of this range, companies take steps to prevent takeover, or they are taken over. The private market value estimate is applied flexibly, based on the outlook for the industry and the company's fundamentals.Manager bio.

Target Manager Allocation: 20%

Size of Company: Small- and mid-sized companies

Stock-Picking Style: Growth

In selecting stocks, Walsh focuses on finding companies with strong and sustainable growth, expanding operating margins and proven management. He looks for expected earnings growth of at least 20% over an 18- to 24-month time frame, and he emphasizes understanding the factors that will drive margin expansion during that period. Walsh also believes that interviews with company management are an important tool for evaluating growth potential, and he devotes time to questioning management on a wide range of topics from business challenges to board composition. Though stock selection is driven by bottom-up research, investments are often in traditional growth sectors such as technology, health care and consumer and business services; however, the process has the flexibility to allow him to seek growth companies in all sectors.

The Copper Rock team sets price targets by applying a multiple to their earnings estimates. Multiples may be determined by examining historical trading ranges for peers during comparable periods in their growth cycle or, where comparable companies do not exist, by determining a reasonable multiple based on expected growth. Generally, Walsh expects to see the potential for at least 30% to 50% appreciation before adding a stock to the portfolio.

Central to Copper Rock's investment approach is a sell discipline that the team strictly adheres to and believes will lead to consistent out-performance. Once purchased for the portfolio, stocks are monitored carefully and sold quickly on any news that casts doubt on a company's future prospects. One example of the team's sell discipline is its rule that a CFO's departure triggers the sale of a stock. While this may not always be a sign of deteriorating fundamentals, Walsh believes it is best to keep his portfolio clear of potential "blow-ups" and is ready to re-examine a stock for repurchase only after these concerns are eliminated.Manager bio.