Cordillera manages small cap growth portfolios with a bottom-up approach built on strong fundamentals. The research and portfolio management team focuses on identifying quality small cap growth companies. These companies typically generate a minimum of twenty percent earnings growth, are highly profitable with stable or expanding margins, have little or no debt, and are market leaders in their industry or area of expertise. This proven strategy has enabled us to successfully identify solid performers across a broad range of industries.

The first stage applies a Fundamental Screen, which narrows a 10,000+ company universe to a select, 300 name candidate list. Candidates are first qualified as small growth companies by screening for market capitalization less than $1.5 billion and projected earnings growth greater than twenty percent. The screen further narrows the candidates to those that have exhibited earnings momentum and high profitability. The final consideration before proceeding to our optimization model is to verify that the ROE is achieved through operating performance and not through excessive leverage. This is accomplished by screening for a low debt-to-equity ratio.

The second stage involves Cordillera's Multi-Factor Model, which order-ranks the original candidate list. This model is supported by internal and external research, which confirms that companies that are highly ranked tend to outperform. Cordillera's proprietary multi-factor model rank orders the 300 stock candidate list within economic sectors based on four factors: estimate revision, earnings surprise, valuation (PEG), and relative strength. The weightings assigned to the factors are dynamic in nature, and are adjusted based on market conditions. We determine the weighting to be placed on valuation and relative strength after assessing the valuation discrepancy between small and large cap stocks, relative to historical levels. Mr. Barela, the portfolio manager is responsible for making the decision to adjust the weightings in the multi-factor model. The result of this process is a focus list containing the best potential performers. The multi-factor model allows the investment team to focus on qualitative analysis of companies with greater capital appreciation potential.

The final stage of the investment process is Qualitative Analysis, which capitalizes on the experience and talents of Cordillera's investment personnel. Cordillera selects 50-70 companies best suited for the portfolio. Companies on the focus list are visited in person or contacted by phone to assess their competitive landscape and market share, barriers to entry, customer diversification, insider ownership, industry maturity and economic sensitivity and future growth prospects. Investment Personnel formulate investment ideas, perform fundamental analysis and due diligence, and recommend buy-sell action. The portfolio manager is responsible for monitoring company and industry developments through company management meetings, quarterly earnings conference calls and research conferences. The firm also converses with industry analysts and economists who provide additional insight.