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Investment Strategy
Research Process
Sell Discipline
Portfolio Management
Our objective is long-term capital appreciation. We seek to identify small, rapidly growing companies with revenue and earnings growth of at least 20% that we believe have the potential to become leaders in emerging industries.
We generate ideas for the portfolio using a hands-on, bottom-up research approach. We look for small, rapidly growing companies with market-capitalizations between $50 million and $750 million. Next, we conduct fundamental business analysis, focusing on a company’s earnings, operating and pretax margins, return on equity, balance sheets, accounting, and management. Management interviews are considered a critical part of our decision-making process. We believe a small company’s success largely depends on its management’s ability to execute a logical business plan and to remain responsive to changing business fundamentals. After a stock passes our criteria, only then will we consider it for purchase. We add positions to the portfolio methodically, on a stock-by-stock basis. Additionally, we develop a trading strategy for a new stock,weighing that stock’s valuation, trading pattern, and general market conditions. We maintain strict diversification guidelines for the portfolio, with a maximum position of 3%. We monitor individual holdings using a proprietary valuation model. In addition, we follow the portfolio positions closely, keeping an ongoing dialogue with the company’s management.
We will sell or consider selling a particular position in the portfolio for the following reasons:
- When the stock becomes overvalued by our valuation measures;
- Exceeds 3% of the portfolio;
- Does not meet operating objectives; and/or,
- Experiences a negative change in business fundamentals.
William J. Wolfenden III (RS) is a principal of RS Investments and has managed the RS Smaller Company Growth Fund and related separate accounts since joining RS Investments in April 2001. Prior to that time, Mr. Wolfenden had been at Dresdner RCM Global Investors since 1994, where he served on the micro-cap and small-cap growth investment management teams. Previously, he spent four years in commercial banking at Westamerica Bank and the Bank of California. Mr. Wolfenden holds a B.A. in economics from Southern Methodist University and an M.B.A. with a dual concentration in finance and accounting from Vanderbilt University.
D. Scott Tracy (RS) has been a co-portfolio manager of RS Emerging Growth Fund and of RS Smaller Company Growth Fund since January 2007 and of RS Select Growth Fund (formerly RS Diversified Growth Fund) since May 2007. Prior to joining RS Investments in 2001, he spent three years at Shoreline Investment Management, the in house asset management arm of Hewlett-Packard. He has also served as an equity analyst at Montgomery Securities. Mr. Tracy holds a B.A. in history from Trinity College and an M.B.A. from the University of California at Berkeley. He is also a Chartered Financial Analyst.
Investing in smaller companies can involve risks such as having less publicly available information, higher volatility, and less liquidity than in the case of larger companies. Overweighting investments in certain sectors or industries increases the risk of loss due to general declines in the prices of stocks in those sectors or industries. Investments in technology companies may be highly volatile.
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