Small-Cap Value

Investment Philosophy – Focused and Long-Term

Channing's investment team utilizes a fundamental, bottom-up value investment philosophy that focuses on undervalued and neglected small-cap stocks, principally stocks within a market capitalization range of $200 million to $2.0 billion. With this approach the team looks for companies that are trading at significant discounts to their intrinsic value, providing what Channing and other value investors often refer to as a “margin of safety.” While many Wall Street participants tend to focus on short-term company fundamentals, it is our belief that over time, stock prices will converge towards values which correspond to their intrinsic worth. We attempt to capture above average returns for our clients through our investment process and discipline based on this market tendency. As a result, Channing’s relatively concentrated and low risk approach focuses on stock picking rather than market timing or sector allocation.

Investing in undervalued and small-sized companies has historically proven to yield outsized returns over the long term. Channing is inspired by the pioneers of value investing such as Ben Graham, and more recently, Warren Buffett, who effectively employed related disciplines with legendary success. While the marketplace has become much larger, dynamic, and more efficient over the years given the proliferation of information and media, the short-term nature of Wall Street has not changed. The intrinsic value of business franchises often takes time to be recognized widely, particularly when a company or an industry has been out of favor. This is why we believe that our investment discipline will continue to be rewarding for long-term investors. However, our results may not always correlate closely with broader or comparable market indices. This only means that the investment rewards of Channing’s approach are best measured over a full market cycle.

Investment Process – Diligent and Experienced

The investment team relies heavily on its deep knowledge and experience in certain sectors and industries to generate investment ideas. Channing believes that its specialized knowledge of select sectors and industries better enables the investment team to identify long-term value opportunities for client portfolios over a multi–year holding period.

Investment ideas are also generated internally through Channing's proprietary screening and selection process. This proprietary process is used to complement the investment team's 50 years of combined experience in identifying characteristics that have the greatest impact on the potential success of investing in a particular stock.

Regardless of the source, Channing's investment team attempts to identify quality companies with share prices that are trading at significant discounts to their intrinsic value. Typically, these are companies with operations or in industries that have not performed well for some period and/or companies that are, in our opinion, misunderstood or under-followed by Wall Street.

As part of Channing's rigorous research process, the investment team compiles information from multiple industry sources for insights including:

• Management quality
• Product and/or service quality
• Business cycle(s) for the company's key products or services
• New product or service offerings in the pipeline that could enhance future growth.
• Industry characteristics

Client portfolios are constructed on a stock-by-stock basis with emphasis given to the return potential of individual securities. Channing relies primarily on stock selection to generate above average returns as opposed to forecasts which emphasize sector weightings relative to a portfolio benchmark. However, sector and industry diversification is also employed as a risk management tool.