Balter L/S Small Cap Equity Fund


Investment Strategy

The Balter L/S Small Cap Equity Fund is focused on fundamental security selection within both domestic and international equity markets. The Fund will invest across the market capitalization spectrum but has emphasis on smaller cap companies. The Fund will utilize sub-advisers to achieve its investment objective. The Fund’s objective is to seek to achieve long term capital appreciation plus income. The Fund is expected to carry net exposure in the 30% to 80% net long range during most market environments.

A Multi-Manager Long Short Equity Fund

The Balter L/S Small Cap Equity Fund is comprised of 4 sub-advisers that have the following characteristics, in aggregate:

  • Fundamental Long/Short Equity
  • Fund exposure will be 30% to 80% net long under normal market conditions.
  • The Fund will invest both long and short in individual equities.
  • The Fund can invest a portion of its assets internationally.

Why are Small Caps Suited for Long/Short Investing?

We believe the essence of long/short investing is having the ability to find stocks that can potentially both outperform and underperform the broad market over time. When constructing a long/short equity fund, we at Balter Liquid Alternatives believe that the best way to invest in equity markets is to construct a fund that focuses on structurally inefficient areas of the market where investors could potentially capture higher returns over time relative to broad market averages. In our view, small-cap equities provide fertile hunting ground for fundamentally based long/short equity managers due to their potential for superior returns, performance dispersion and inherent inefficiency due to reduced analyst coverage. This inherently results in a fund that cannot scale as large as those invested in large-cap stocks. We have found that few firms who have the capability to provide genuine liquid alternative funds are willing to sacrifice scale for the prospect of superior returns. We believe this has created an opportunity for those able to provide investors options for high-quality, authentic small-cap long/short equity funds.

For more on this topic please refer to the following pieces:

Small Cap Inefficiencies May Offer Greatest Opportunity for Alpha

Small Cap Equities – Ideally Suited for Long/Short Investing


Intrinsic Edge Capital Management

Intrinsic Edge is a long/short equity asset manager whose domestic equity strategy is focused on delivering absolute returns.  They are focused on identifying material deviations between in-house modeling and market expectations through their bottom-up research of small and mid-cap companies.  Models are built off information derived from hundreds of discussions with company management over the course of the year.  They focus on key drivers that they believe will impact prospective earnings, resulting in a change in a company’s stock price.  Some key elements of their investment approach are as follows:

  • Expectation driven strategy: Intrinsic Edge has identified key drivers from their extensive investment experience that been the most consistent indicator for how a stock’s price will react.  They are looking for material deviations relative to the market’s consensus expectations with respect to these drivers.  As generalists, they have the advantage of investing across all sectors to find the best opportunities. They tend to avoid companies that are deeply cyclical, in their early stages, or have material credit risk.
  • Breadth of research coverage: Intrinsic Edge has 8-10 scheduled calls with company management on a typical business day and attend a large number of stock and industry conferences, resulting in over 750 calls/meetings per quarter.  From these calls, they will choose the best 50-60 names for their portfolio.
  • Generate Returns on Longs and Shorts: Historically, their opportunistic approach has allowed them to generate absolute returns on both sides of the portfolio under various market conditions.  They do not force shorts or pair trades; all individual equity positions stand on their own.

Mark D. Coe, CFA is the CIO and Portfolio Manager primarily responsible for managing Intrinsic Edge’s allocation to the Balter L/S Small Cap Equity Fund.  Prior to founding Intrinsic Edge Capital Management in 1999, Mr. Coe was a portfolio manager at Kent Associates/Paine Webber.  Prior to  Kent Associates/Paine Webber, he was an investment analyst at Gofen and Glossberg, Inc.  Mr. Coe received a BS in Accounting from the University of Illinois in 1984 and an MBA in Finance from the Kellogg Graduate School Business in 1987.

Midwood Capital Management

Midwood Capital Management

Midwood Capital is a value-driven long/short equity asset manager whose investment philosophy is built upon maximizing long-term returns while seeking to minimize downside performance in weak markets. The firm’s allocation to the Balter L/S Small Cap Equity Fund focuses on the U.S. equities market by investing predominately long and short in U.S. small-cap companies. Midwood seeks to establish an investment advantage in the U.S. small-cap equities market by coupling their hands-on research approach, which includes site visits, management interviews, and meetings with suppliers, customers, and sales reps, with their proprietary valuation analysis. They believe this level of diligence allows them to evaluate the alignment of management interests, board dynamics, and the strength of corporate governance.

David Cohen is responsible for managing Midwood’s allocation to the Balter L/S Small Cap Equity Fund.  Mr. Cohen founded Midwood Capital in 2003 after working at Igoe Capital Partners – a hybrid public/private equity investment firm focused on undervalued micro-cap and small-cap public companies.  Mr. Cohen received his MBA with High Distinction from the Tuck School of Business at Dartmouth College where he was a Tuck Scholar (1995). He holds a BA, summa cum laude, from Yale University and was elected to Phi Beta Kappa (1988).

Millrace Asset Group, Inc.

Millrace Asset Group, Inc.

Millrace Asset Group, Inc. (“Millrace”) invests its allocated portion in the small and mid-capitalization sectors utilizing intensive fundamental, bottom-up, research-driven analysis to identify what it believes to be compelling long and short opportunities. Millrace employs both long and short equity positions to optimize potential returns and to preserve capital in difficult markets. The strategy is centered on the belief that greater inefficiencies exist and greater innovation occurs in the small capitalization sector than in higher market capitalization sectors. Millrace’s investment team believes that these inefficiencies can be exploited by applying a disciplined research methodology to identify companies that exhibit proprietary characteristics giving them a dominant position in their industry or market niche.

William Kitchel, III and Whitney Maroney are the individuals responsible for making investment decisions for Millrace’s allocation to the Balter L/S Small Cap Equity Fund. Mr. Kitchel and Mr. Maroney co-founded Millrace in 2001 after working together at Greenville Capital. Mr. Kitchel’s and Mr. Maroney’s professional relationship spans over 20 years, as they first began working together in the asset management division of Alex Brown & Sons. At Alex Brown, Mr. Maroney began as an assistant analyst in the asset management division in Baltimore, while Mr. Kitchel managed portfolios for high net worth investors in Wilmington before becoming one of two analysts on the firm’s Emerging Growth mutual fund. In 1997, Mr. Kitchel joined Mr. Maroney as a research analyst/PM at small cap manager, Greenville Capital Management in Wilmington, Delaware, where they worked together for 5 years. The two managed approximately $250 million of the fund’s assets. Mr. Kitchel has his BA from the University of Virginia (1981) and received his MBA from Dartmouth’s Amos Tuck School of Business (1987). Mr. Maroney has his BA from Washington College (1991) and received his MBA from the William and Mary School of Business.

12th Street Asset Management

12th Street Asset Management

12th Street is a deep value focused asset manager, based in Chicago, Illinois, seeking to generate long-term growth for investors through a portfolio of carefully selected companies. They are targeting companies with a market cap of less than $5 billion at the time of their initial investment. They are looking for a select number of companies (typically 8 to 15) that meet their investment criteria of good businesses trading at discounts to their intrinsic value estimates. They attempt to reduce risk by investing in companies with a margin of safety and have a willingness to hold cash when bargains are not available.

Michael O’Keefe and D. Andrew Shipman are responsible for managing 12th Street’s allocation to the Balter L/S Small Cap Equity Fund. Prior to joining 12th Street as the managing member, Mr. O’Keefe was a founding member of Two Rivers Capital Management and a founding partner of Value Architects Asset Management, LLC. Mr. O’Keefe is a former Managing Director of Morgan Keegan & Company where he worked for over 15 years. Before Morgan Keegen, Mr. O’Keefe was a CPA at Ernst & Young. Mr. O’Keefe earned a Bachelor of Arts from Rhodes College and a Masters of Business Administration from the University of Memphis. Mr. Shipman joined 12th Street Asset Management in 2010. Previously, he served as director and portfolio manager for PNC Capital Advisors (PCA) large cap value team, which managed over $600 million in assets. Prior to PCA, Mr. Shipman was a co-portfolio manager at Invesco and managed more than $10 billion in large cap core assets. Mr. Shipman has also served in various equity research positions for Credit Suisse and Morgan Keegan. Mr. Shipman earned a Bachelor of Arts from Rhodes College and a Masters of Business Administration from the University of Memphis. Mr. Shipman is also a CFA charterholder.

References to other mutual funds or products should not be interpreted as an offer of these securities.

Performance through May 31, 2019
Monthly (05/31/19) MTD 3 Month YTD 1 Year 3 Year 5 Year 10 Year Since Inception*
BEQIX (Class I) -2.98% -1.10% 8.40% 0.49% 8.72% 5.75% 5.35%
Russell 2000 Index -7.78% -6.64% 9.26% -9.04% 9.75% 6.71% 12.84% 5.78%
Morningstar L/S Equity Cat. -3.75% -1.49% 3.82% -2.82% 3.40% 1.59% 3.28% 1.78%
Performance through March 31, 2019
Quarterly (03/31/19) MTD 3 Month YTD 1 Year 3 Year 5 Year 10 Year Since Inception*
BEQIX (Class I) -0.09% 9.50% 9.50% 5.37% 10.98% 6.24% 5.73%
Management Fee: 1.95%

*Fund Inception: 12/31/2013

Total operating fund expense as of 03/01/2019: 2.46% (Gross), 2.19% (Net). Pursuant to an operating expense limitation agreement between Balter Liquid Alternatives, LLC (the “Adviser”) and the Fund, the Adviser has agreed to waive its fees and/or absorb expenses of the Fund to ensure that Total Annual Fund Operating Expenses (excluding any front-end or contingent deferred sales loads, brokerage fees and commissions, acquired fund fees and expenses, borrowing costs (such as interest and dividend expense on securities sold short), taxes and extraordinary or non-recurring expenses, including, but not limited to, litigation) for the Fund do not exceed 2.19% and 2.54% of the Fund’s average net assets, for Institutional Class and Investor Class shares, respectively, through February 28, 2020. This operating expense limitation agreement can be terminated only by, or with the consent of, the Board of Trustees. The Adviser is permitted to receive reimbursement from the Fund for fees it waived and Fund expenses it paid, subject to the limitation that: (1) the reimbursement for fees and expenses will be made only if payable within three years from the date the fees and expenses were initially waived or reimbursed; and (2) the reimbursement may not be made if it would cause the expense limitation in effect at the time of the waiver or currently in effect, whichever is lower, to be exceeded.

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. The fund imposes a 1.00% redemption fee on shares sold within 60 days. For performance information current to the most recent month-end, please call toll free 855-854-7258.

The indices shown are for informational purposes only, are not reflective of any investment, nor are they professionally managed. As it is not possible to invest in the indices, the data shown does not reflect or compare features of an actual investment, such as its objectives costs and expenses, liquidity, safety, guarantees or insurance fluctuation of principal or return, or tax features. There is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses.

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