On a recent trip to Chicago, during which he had to contend with major flight delays, Chris Colarik, portfolio manager for Philadelphia-based Glenmede Investment Management’s Small-Cap Equity strategy, was dismayed to find that because he hadn’t flown in such a long time, he could no longer avail himself of the privileges U.S. Airways offers its frequent fliers.
That caused some momentary discomfort, of course, but in the grander scheme of things, Colarik didn’t mind at all.
“The successful performance of our product means that we haven’t had to go out on the road to market it,” he said. “We sowed all the seeds and now all we really need to do is follow up.”
Colarik—who has been with Glenmede since 2001—co-manages the Glenmede Small-Cap Equity strategy with lead portfolio manager Bob Mancuso, who’s been leading the team since 1993. The duo manages a total of $1.8 billion in the strategy, of which $500 million is split between SMA and UMA accounts. Both men are invested in the strategy that they manage.
Colarik credits the success of Glenmede’s $1.8 billion Small-Cap Equity product (which over the past decade has steadily outperformed the benchmark Russell 2000 index) to consistency, discipline and “never wavering from our core strategy.”
Getting the best out of the small-cap equity space means thinking long term, Colarik said, and that means tuning out the daily, weekly and even quarterly noise and assessing companies in an in-depth manner over the course of a complete market cycle.
As a firm, Glenmede, named SMA Manager of the Year in the small-, SMID- and mid-cap category, believes in diversifying across sectors, industries and individual securities, and combining that with an emphasis on quality. The firm sorts its universe of 3,500 stocks into eight economic sectors and ranks them according to their valuation; growth and profitability; earnings and company-specific catalysts; and market confirmation of price momentum. Those stocks that rank in the top 20% of each sector and that are either in the Russell 2000 or have less than $2.75 billion in market capitalization then form Colarik’s “buy list” of about 400 names to choose from.
“Whatever name we want, we’ll pick from this opportunity set,” he said. “It’s ramped every night, and when we decide to make a change to sector weights or investment themes, we will go to this list to look for replacements.”
He highlights the importance of what he calls the “point/counterpoint” factor in objectively choosing the best names for the buy list.
“We want a stock to have at least three sell-side analysts to compare and to challenge high versus low estimates,” he said.
Opportunities in Energy, Aerospace and Financials
The second component of the investment process entails combing through news articles, research reports from Wall Street firms and independent players, thought pieces and the like to get a sense of the big themes at play in the U.S. economy and how they translate into the small-cap space.
“Let’s take the larger theme of energy, for example, and the fact that the [United States] is moving toward energy independence,” Colarik said.
In the small-cap space, that would mean investing in companies that will provide the requisite infrastructure for the impending energy boom, he said; the engineering and construction companies that “are not Exxon, but that are building the pipelines for Exxon.”
Similarly, in the broader world of financials, Colarik picks small-cap banks that have a regional focus and that serve Main Street USA, since they’re a direct manifestation of the bigger theme of increasing consumer confidence in the economy. In the aerospace sector, where several companies are upgrading their existing fleet by replacing seats, galley equipment, toilets and the like, “we can’t own Boeing or Airbus, but we can own companies that are supplying them,” Colarik said.
The crux of the Glenmede approach lies in matching investment themes and ideas with names on the buy list and only on the buy list. Colarik will sell a stock when it falls to the bottom 20% of its sector rankings, either because it’s become fully valued or because there’s been a deterioration of business trends.
But for Colarik, the most important factor in Glenmede’s success is that it sticks to what it’s supposed to do.
“We are small-cap managers, and we make sure we stay in that box so we don’t become mid-cap managers,” Colarik said. “Our success is due to the fact that we don’t drift around; this is extremely important to us.”
This is part of a series of extended profiles of the 2014 Separately Managed Account Managers of the Year. Briefer profiles and an overview of the 10th annual SMA Managers of the Year can be found in Investment Advisor’s July 2014 cover story. Additional reporting and video interviews of the winning managers can be found on our 2014 SMA Managers of the Year home page.