Philosophy

Why Small-Mid Cap Stocks?

At Goodwood Capital Management, our investment philosophy begins with the belief that small and medium sized public companies with lower valuation multiples offer the greatest long term risk-adjusted returns. This belief is rooted in empirical data and academic research, which concludes that a “value-biased” small-mid cap investment strategy outperforms all others over a long-term time horizon. Therefore, our focus is on “SMID Cap” stocks encompassing an investable universe of over 2,500 securities with market capitalizations less than $20 billion.

Why Long Short?

In conjunction with our value-biased approach to stock selection for our long portfolios, we also know from the same empirical and academic research that stocks with higher valuations tend to underperform over time. It is our belief that portfolio managers with the requisite skills and experience can add value by investing both long and short within their areas of expertise while employing that same ability to reduce equity market risks when necessary. Therefore, we aim to harness our fundamentally driven, research focused investment process across both the long and short sides of our portfolios to drive alpha and to hedge risks accordingly.

Why Capacity-Constrained Strategies?

Research has also shown that asset bloat can significantly degrade an asset manager’s ability to generate alpha. At Goodwood, we have been investing in the long short equity discipline since 2002. Over that time period, we have witnessed firsthand how asset managers tend to underperform as their assets under management grow. This is especially the case with more concentrated small and mid-cap strategies. Therefore, capacity constraint is central to our investment philosophy. It is our goal to build and maintain a “boutique” investment firm with capacity-constrained strategies.