Investment Philosophy

We are guided philosophically by a focus on academically documented inefficiencies. We look for evidence of an underreaction to transformational change that is likely to drive growth or a lag between news signals that will impact underlying value and the realization of its significance. These occurrences often result in exceptional investment opportunities. We seek these opportunities through geographically focused products.

Foundational Philosophical Pillars

  • philo-01Academically established and time-tested research based on behavioral biases that can lead to market mispricing.
  • philo-02Identification of securities where we believe the marketplace has incorrectly assessed recent information and signals, leading to the underestimating of future earnings growth.
  • philo-03Use of a bottom-up, disciplined, and repeatable investment process to assess each company’s fundamental business and identify discounts from fair value.
  • philo-04Being nimble and attentive in capitalizing on perceptional lags in pricing.

Primary Areas of Focus
Oberweis seeks to uncover opportunities to fulfill small-cap mandates. Each of our products is managed by a dedicated team specializing in the application of our philosophy to a specific product’s objective.

U.S. Growth Products

We believe alpha is generated by investing in companies that are:

  • Growing sales and/or earnings in excess of expectations.
  • Experiencing a fundamental change that is misunderstood.
  • Capable of generating results beyond expectations in the future.
  • Attractively valued based on our own proprietary estimates.

The foundations of our philosophy are based on the Post-Earnings Announcement Drift. This phenomenon is grounded on the behavioral biases and tendencies exhibited by investors.

The Post-Earnings Announcement Drift exists when investors systematically underreact to new information contained in surprising earnings reports.

For our U.S. growth-oriented products, we search the U.S. markets for companies that have reported a significant positive earnings surprise, signaling that something profound may be changing at the company that is not fully appreciated by the average investor. Our research team seeks to understand if that change is sustainable and is likely to drive future earnings surprises, which would suggest the company’s current valuation is compelling. Our team leverages a focused investment process and years of investing experience to efficiently identify companies where earnings power is underestimated and pricing inefficiencies exist.

International Products

We believe alpha is generated by investing in companies that are:

  • Growing sales and/or earnings in excess of expectations.
  • Experiencing a fundamental change that is misunderstood.
  • Capable of generating results beyond expectations in the future.
  • Attractively valued based on our own proprietary estimates.

The foundations of our philosophy are based on the Post-Earnings Announcement Drift. This phenomenon is grounded on the behavioral biases and tendencies exhibited by investors.

The Post-Earnings Announcement Drift exists when investors systematically underreact to new information contained in surprising earnings reports.

For our international products, we search international markets and/or China for companies that have reported a significant positive earnings surprise, signaling that something profound may be changing at the company that is not fully appreciated by the average investor. Our research teams seek to understand if that change is sustainable and is likely to drive future earnings surprises, which would suggest the company’s current valuation is compelling. Our teams leverage a focused investment process and years of investing experience to efficiently identify companies where earnings power is underestimated and pricing inefficiencies exist within the geographic focus of their portfolios.

Emerging Markets

We believe small-cap emerging markets offer significant potential for attractive, long-term investment results. With emerging economies growing at roughly twice the rate of the developed world’s, many high-quality emerging markets companies will benefit from the resulting increase in consumer spending and capital investment. Small-cap emerging markets also represent an opportunity to diversify portfolios with holdings less correlated to the economy of the United States.

While we pay close attention to economic and political developments in emerging markets and adjust our portfolio accordingly, fundamentally driven stock selection is our core focus. Over the long term, we believe the best way to capture healthy, risk-adjusted returns in emerging markets small-cap equities is by carefully assembling a diversified portfolio of companies with:

Robust balance sheets Durable competitive advantages Strong secular growth Clean corporate governance and prudent management Attractive valuations

With our emphasis on business quality, Environmental, Social and Governance (ESG) factors, and competitive advantages, we build the portfolio one company at a time based on the opportunities we uncover, not by closely tracking the underlying benchmark’s sector or country weights. The result is an actively managed portfolio that may move independently of the index but that we believe can provide attractive, long-term, risk-adjusted returns.

U.S. Value

Markets are volatile and “noisy.” Frequently, the noise surrounding an unexpected occurrence at a company causes its market price to diverge from its true value. This creates the type of opportunity we seek for purchasing overlooked or undervalued stocks that are unduly discounted by the market.

We believe investor psychology is as predictable as it is inherent to investing and that human behavior leads markets to forget that not all information is of equal importance. This often distorts prices of otherwise strong companies. We focus on identifying such anomalies, using a highly disciplined process. We then look for an inflection point or catalyst that will dispel the noise and eventually surprise the market. Our expectation is that this will lead to positive price drift as analyst expectations gradually shift to the upside.

The signals we look for may include:

  • Stock repurchase activity.
  • Dividend policy changes.
  • Insider buying activity.

These undervaluation-driven signals provide a launching point for applying our disciplined, bottom-up analysis to understand underlying characteristics and validate the strength of a company’s fundamentals. Included in that evaluation is an assessment of the management team and its dedication to sound corporate governance practices. Once we confirm a case of mispricing in a solid company’s stock, we invest and hold until the stock’s price returns to a more reasonable and justified valuation.

To understand the role ESG plays in how we implement our philosophy across our funds and strategies, click here.


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