E X PERI EN CED. I N D EPEN D ENT. PROV EN .
THE WORLD IS OUR OYSTER:
INTRODUCING OPUS INTERNATIONAL SMALL CAP
AN INTERVIEW WITH ADAM EAGLESTON, CFA - PRINCIPAL AND PORTFOLIO MANAGER
For over 20 years, Opus has been investing in small cap stocks. During that time, we have developed an
expertise in evaluating companies that are underfollowed, misunderstood, and undervalued. The increasing
interconnection among the world’s economies has led us to researching U.S. small caps within a global context,
as often domestic small cap companies have operations, customers, and competitors located outside the U.S.
What we found in looking at many of these non-U.S. competitors is that they were better businesses than their
U.S. counterparts. The combination of this investment expertise with the operational and trading capabilities
from our emerging and developed market strategies allows us to offer an outstanding solution for clients
looking to exploit the inefficiencies in non-U.S. small caps. Our International Small Cap Strategy is built on the
same framework that has helped us achieve top-decile returns for our U.S. Small Cap Value Plus strategy since
its inception.
To learn more about Opus’ International Small Cap strategy, Mike Knapke, Manager - Marketing and Client
Service spoke with Adam Eagleston, CFA, Principal and Portfolio Manager.
OPUS CAPITAL MANAGEMENT
221 East Fourth Street, Suite 2700
Cincinnati, Ohio 45202
p (513) 621-6787
f (513) 639-3072
www.opusinc.com
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OPUS CAPITAL MANAGEMENT | EXPERIENCED. INDEPENDENT. PROVEN.
Q&A: Opus International Small Cap
Why international small caps?
The inefficiencies we see in domestic small cap stocks are amplified outside the U.S. Not only is there a much larger
universe of stocks, but also there is even less sell-side coverage. In many cases, there is no coverage whatsoever.
This is what provides us the opportunity to find great businesses at inexpensive valuations. For us, we look at both
developed and emerging markets, and are finding attractive opportunities across the globe right now.
Describe the process for identifying and vetting ideas for the portfolio?
Like oysters, many companies look similar from the outside. We apply our craft to find those that are the most likely to
have a pearl inside, and the only way to do that is by doing the hard work of primary, fundamental research.
Our process is simple. It is just like the Picasso quote on the difference between art critics and artists. Critics talk about
form, shape, etc. while artists talk about where to find cheap turpentine. We are like the artist, and just try to find high
quality, growing companies trading at value prices. We think casting a wide net maximizes our chances for success, and
find ideas in lots of different places. In some cases it can be from meetings with company management, in others from
researching a competitor or supplier. We also attend conferences, talk with our industry peers, and use factor-based
analysis to find companies that look attractive.
In terms of our research process, we are trying to find the one or two things that a company can successfully accomplish
to generate superior growth. We assess how likely the company is to achieve these objectives, and compare those to
the risks associated with the business.
In conducting our research, we evaluate each company’s growth profile, quality, and valuation. Growth is a byproduct of the company’s economics, industry dynamics, and macro environment. Our assessment of quality includes
assessment of management and its capital allocation decisions as well as the company’s financial condition. The last
thing we consider is valuation. We think if you start with valuation you can end up spending too much time looking at
value traps, though on the flip side we do not want to overpay for any business.
How would you describe the ideal Opus stock?
We love companies with an owner-operator mentality. Incentives for these businesses are typically very favorable for
shareholders. We also like companies that operate in a fragmented industry, have high switching costs, or a high degree
of recurring revenue. It is always nice when the company converts a large portion of net income to free cash flow, too.
We are also big proponents of inversion, and thinking about what does not typically work. At some price any business
can be attractive, but for us businesses that are commodity-oriented or have low barriers to entry have to be selling at
a low multiple to even pique our interest.
How do you think about risk?
We really like Charlie Munger’s definition of risk, which is a permanent loss of capital or failing to generate an adequate
return. We think things like tracking error and standard deviation are inconsequential in terms of delivering strong
returns for clients. Likewise, we are not concerned about our weights in various countries, regions, or sectors relative
to some arbitrary benchmark. Of course we are cognizant of how different companies we own may be affected by the
same phenomenon, and own a diversified portfolio of 25-45 great companies that are broadly representative of the
global economy. We size our positions based on our level of conviction in the company, which encompasses the risks
associated with the holding versus the upside potential.
How does this strategy compare to your other strategies?
Opus’ investment philosophy is consistent across all strategies. We are looking for high-quality companies with growth
potential that are trading at good valuations. In terms of our process, international small cap uses the same successful
framework that has helped us generate top-decile performance for our domestic Small Cap Value Plus strategy.
Opus Capital Management
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The World Is Our Oyster: Introducing Opus International Small Cap
OPUS CAPITAL MANAGEMENT | EXPERIENCED. INDEPENDENT. PROVEN.
Why do you think this strategy will be effective for non-U.S. small caps?
Analyzing a business is no different whether you are researching a U.S. company or one based outside the U.S.
We apply the same criteria as we use for domestic holdings. The key for us is understanding the economics of the
underlying business and whether the company and its management team are capable of generating superior returns
on investment.
We think there are three sources of edge for the strategy. First, as we discussed, there is not much coverage on many
of these companies. We often garner an information advantage by being one of few, if any, investors talking with
company management. It is amazing how receptive many of these companies are to speaking with investors, and we
ultimately become the expert on many of our holdings.
We also believe our vast experience and disciplined framework provides us with an analytical edge. Thoreau famously
said, “it’s not what you look at that matters. It’s what you see.” What we are trying to find differs from what most value
investors seek. We are not looking for cheap ice cubes that are melting a little more slowly than people think, but rather
for snowballs gathering momentum.
Finally, we are patient investors, and take advantage of the market’s focus on the short-term to opportunistically
position the portfolio.
About The Portfolio Manager
Adam T. Eagleston, CFA - Principal and Portfolio Manager
@AdamEagleston
Mr. Eagleston is a member of the investment team responsible for research and portfolio management
for Opus’ Value and Value Plus strategies. Mr. Eagleston has 20 years of investment experience, and
prior to joining Opus was vice president and senior portfolio manager for Huntington National Bank.
Previously, Mr. Eagleston served as chief investment officer for Pinnacle National Bank’s institutional
trust division and for First Mercantile Trust Company. He has also served as an investment analyst for
First Mercantile and as a senior research analyst for Carolinas Investment Consulting.
Mr. Eagleston serves on the Investment Sub-Committee for KnowledgeWorks Foundation and is president of the board
of Wyoming Youth Services. He is a member of the CFA Institute and the CFA Society of Cincinnati. He graduated
summa cum laude from Clemson University with a bachelor’s degree in financial management and a minor in accounting.
About Opus Capital Management
Opus Capital Management, based in Cincinnati, Ohio, is a 100% employee-owned registered investment advisory firm
specializing in high-quality investments. Opus offers separate account management for public funds, corporations,
endowments, foundations, Taft-Hartley and registered investment companies.
Opus’ investment solutions leverage decades of experience discovering value in high-quality companies and include:
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Developed Markets Value Plus
Emerging Markets Value Plus
International Small Cap
Small Cap Value Plus
Small Cap Value
Microcap Value
All Cap Value Plus
Large Cap Value Plus
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for regular updates and insights from the firm’s portfolio managers and
research analysts.
Opus Capital Management
221 East Fourth Street, Suite 2700
Cincinnati, Ohio 45202
(513) 621-6787 • www.opusinc.com