Insights / September 24, 2019

Views From a Value Manager in a Growth Shop

Wasatch’s growth-oriented research team provides advantages for a value manager.

What’s it like being a value manager in a shop focused on investing in highquality growth companies? For Jim Larkins, the Lead Portfolio Manager of the Wasatch Small Cap Value strategy, it’s a very natural fit. Indeed, he says the strong quality– and growthoriented research capabilities Wasatch has developed since the firm’s founding in 1975 provide him with significant advantages over many other value managers.

The smallcap research team at Wasatch seeks to identify the highestquality growth companies throughout the U.S. Jim is a member of that team. So when stock prices falter due to the volatility inherent in small companies, he’s prepared to purchase these same companies as value stocks, often ahead of other portfolio managers. “There’s an inefficiency that exists when a growth stock becomes a value stock, and I try to exploit this inefficiency, says Jim.

Jim has been involved with the Wasatch Small Cap Value strategy since before its formal launch in 1997, having joined the prelaunch investmentmanagement team as a Research Analyst. He became a Portfolio Manager in 1999 and is now the longesttenured portfolio manager at Wasatch.

As of June 30, 2019, the Wasatch Small Cap Value strategy had almost $1.1 billion in assets invested in approximately 50 securities. The strategy’s edge over much of its competition is its reliance on an investmentresearch team that’s primarily focused on highquality stocksincluding growth stocks.

Jim seeks to exploit this competitive edge throughout what he sees as a threestage lifecycle of a value stock. In the first stage, he seeks to buy a company at a price below its intrinsic value, which he considers to be its earnings potential. For a company that has experienced a temporary setback, earnings potential might be defined by the level prior to the setback. In the second and third stages, he seeks to take advantage of earnings acceleration followed by pricetoearnings (P/E) multiple expansion.

Before purchasing a company, Jim looks for metrics that indicate whether the stock is inexpensive relative to where it’s been historically. Although potential future earnings are very important, smallcap value companies that have stumbled often have low current earnings. So the current P/E ratio may not be meaningful. Therefore, Jim also looks at the pricetobook value and the EV (enterprise value)-tosales ratios, which he considers to be more stable measures of worth  with smaller gyrations than those seen in earnings.

While earnings can be volatile, book value doesn’t usually change rapidly. If a company is selling below a fiveyear average pricetobook value or EVtosales ratio, then Jim might consider the market price to be below the company’s intrinsic value. Moreover, since the EVtosales ratio takes into account the company’s debt load, this ratio is also very helpful because it provides a window into the company’s balance sheet and income statement.

When looking at a potential new company, Jim considers whether or not other investors will find it attractive in the future. That’s why he considers earnings power and the company’s income statement. If the company recovers and earnings return, growth investors probably won’t be far behind, pushing the stock price up.

In many cases, Jim looks at companies that have been through the complete Wasatch investment process, including initial research, company visits and purchase of the stock in the Wasatch growth strategies. If a company falls out of favor because it appears that growth prospects are diminished, the stock may drop into value territory and become an attractive candidate for purchase, as long as there’s a likelihood that growth will resume within one to two years.

Jim takes full advantage of the investment experience and proprietary research at Wasatch to identify value prospects. This enables him to buy in the first stage of the lifecycle, just after a company stumbles and many investors are running out the door. Other value managers, relying on routine quantitative screens, may not find these prospects until later in the cycle when the stock price has already begun to rise.

In the second stage of the valuestock lifecycle, earnings acceleration may not begin for several quarters after the initial investment. It often takes that long before the fundamentals improve and show up on the income statement. Jim believes this inflection point of improving fundamentals is when there’s the best risk/reward potential, and he tries to maximize the capital deployed. As earnings come back, the stock price usually advances.

In the third stage of the lifecycle, a value stock may begin to take on the characteristics of a growth stock, experiencing P/E multiple expansion. While many traditional value investors may exit their positions in the second stage, Jim prefers to hold his companies a bit longer, and potentially capture the full earnings acceleration and the upside as the stocks trade at premium P/E multiples. He credits the entire Wasatch investment team for helping him navigate the second and third stages.

“There are two things I do that most other value managers don’t,” says Jim. “One is that, due to Wasatch’s institutional knowledge of many highquality smallcap companies, I tend to participate early in stockprice recoveries as previously broken growth names regain their footing. This is where the risk/reward tradeoff is particularly attractive. The second is that I’m willing to own the companies longer than other value managers. If I’m right, I’ll capture all three stages of performance in the lifecycle. For clients, it’s incredibly rewarding to buy a stock that’s undervalued, capture the earnings acceleration, and then sell at a premium P/E multiple. I’m not this savvy every time, but the challenge to capture all three stages for our clients is what really energizes me.

Jim places each Small Cap Value holding in one of three categories: Fallen Angels, Undiscovered Gems and Quality Value Companies.

Usually making up a sizable category for new investments, Fallen Angels consist of companies that are generally being purchased below intrinsic value. Typically these are former growth companies that have stumbledcompanies that have hit a bump in the road, but are not at the end of the road. These companies have often suffered a sharp stockprice decline that may be an overreaction by the market to a negative company event.

Using a process he characterizes as incomestatement oriented, Jim looks at potential earnings growth as the catalyst that will eventually lead to a recovery. Analyzing the company’s income statement, he can determine what the company’s earnings have been historically and whether he thinks the company can restore those earnings in a reasonable period of time, and then go on to grow to higher levels.

One example of a Fallen Angel is Ebix, Inc. The company operates specialized and highly profitable data exchanges for the financial, insurance, healthcare and onlinelearning industries and has a strong global presence with customers in 69 countries. A central focus for Ebix is building a complete financial and insurance platform, known as a stack, to serve India’s massive market. The stack includes travel, insurance, remittance, foreignexchange and wealth– management services. The company is at the forefront of India’s digital revolution and has benefited as India’s workforce has become more mobile.

Among the company’s initiatives, EbixCash has grown since it was established in 2006 to become one of India’s largest financial exchanges. Its products can be accessed digitally and through thousands of distribution outlets across the country. EbixCash offerings include a domesticremittance exchange, prepaid cards, utilitypayment services and a travel portal. Ebix has also partnered with Paytm, India’s largest electronicpayments processor, to offer moneyexchange services to Paytm’s 350 million users. To support its initiatives in India, Ebix management has been aggressively acquiring Indian financial companiesmore than 10 in the past couple of years alone.

Ebix has been owned successfully a few times in the Small Cap Value strategy. After a selloff in 2013, Jim has held the stock at different phases of its development. More recently, he has come to view Ebix as a Fallen Angel because of the amount of debt the company has taken on to finance its growth through acquisitions. While he still likes the stock, he responded to the increased risk by dramatically reducing the strategy’s position in Ebix.

Undiscovered Gems currently make up the largest category in the Wasatch Small Cap Value strategy. The category includes companies with low valuations due to lack of coverage and interest by analysts and investors. These companies are typically good growth companies that have been ignored by the market for any number of reasons. Perhaps the companies are too small for analysts and investors to take note. Or the companies may have come through long recoveries during which the earnings have improved, but not the stock prices.

A good example of an Undiscovered Gem is Monro, Inc., an acquisitive, vertically integrated operator of autorepair shops that service tires, wheels, brakes, suspensions, drivetrains, and exhaust and steering systems. Jim is a fan of Monro’s accretive growth model of acquiring local momandpop repair businesses that are already generating solid revenue. Monro then improves the acquired businesses’ bottom line by stocking them with proprietary lowcost, highquality parts sourced from Asia. Because in many cases Monro acquires businesses in geographies where it’s already operating, the incremental cost of adding a new outlet in terms of advertising spending and regional management overhead is minimal.

Having invested in the stock three different times over the last two decades, Jim knows the company well. When he most recently invested in Monro a few years ago, he viewed the company as a Fallen Angel because Monro’s share price had been punishedalong with those of many autoservice industry peersdue to reverberations from the global financial crisis (GFC).

Cars tend to start experiencing additional breakdowns around the time of their sixth birthday. There was a significant dropoff in newcar sales during the 2009 to 2010 period right after the GFC, which in turn had a measurable negative effect on repair businesses like Monro roughly six years later. But auto sales came roaring back in the years after 2010. And, predictably, cars of the 2011 to 2013 vintages are now experiencing systems failures. As a result, what had been a cyclical headwind for Monro has become a tailwind contributing significantly to samestore sales growth.

A second factor that had weighed down Monro’s share price was a shakeup in management, with the appointment of a new CEO and the elevation of a sitting board member to chairman. Although Jim had been a supporter of the outgoing leadership, he and other members of the smallcap research team met with the new CEO, Brett Ponton, and were impressed by Mr. Ponton’s industry expertise and focus on upgrading Monro’s technology platform.

In addition to bringing efficiencies to the existing business, techfocused leadership helped Monro become a tireinstallation partner for Monro is also an approved installer for Tire Rack, which sells tires to consumers online and then ships them directly to repair shops for installation. While Monro might prefer to sell its own inventory of tires, such arrangements with Amazon and Tire Rack mean even more onsite customers to whom additional services can be sold.

In its mostrecent fiscal year, Monro reported record sales of $1.2 billion and had 1,249 companyoperated stores. Monro has continued to make acquisitions, adding over 250 locations in the past five years. Having successfully turned around its business but not yet getting the investor attention it deserves, Monro graduated from Fallen Angel to Undiscovered Gem in the Small Cap Value strategy.

Together, Fallen Angels and Undiscovered Gems usually account for about 70% to 80% of the holdings in the Wasatch Small Cap Value strategy.

Quality Value Companies, which are Jim’s version of “traditional” value names, generally comprise the remaining 20% to 30% of the strategy’s holdings. These companies usually have been through a sustained turnaround, are experiencing modest growth, or have exposure to deep cyclical or commodity swings.

As with Fallen Angels and Undiscovered Gems, Quality Value Companies must have (1) a strong balance sheet or (2) a robust business model. Jim is adamant that companies must possess at least one of these two characteristics. He tries to avoid companies that have both balancesheet and businessmodel stresses, a condition he calls “double trouble.” Quality Value Companies must, he says, have some redeeming characteristics in these areas.

An important feature of many of the stocks in the Quality Value category is the extent to which they can add stability to the strategy, acting as ballast to the Fallen Angels, which tend to be more volatile. Not surprisingly, this ballast often comes from incomeproducing stocks such as Arbor Realty Trust, MFA Financial, Monmouth Real Estate and Summit Hotel Properties.

Innospec is another great example of a Quality Value Company. A global specialty chemicals company, Innospec has a wide range of productsfrom fuel additives to oilwell drilling fluids to surfactants used in consumer products such as shampoos and shower gels.

While Wasatch typically hasn’t invested in many materials companies, Jim was attracted to Innospec initially by the quality of its management team and then by the diverse and innovative nature of its product line. This diversity differentiates Innospec from many other materials companies, which may focus on only one area such as producing carbon steel or aluminum, for example. Innospec has a highperformance culture and invests significantly in research and development.

Several new Innospec products have exciting potential. Dragreducing agents (DRAs) are cuttingedge additives for oil pipelines. DRAs lessen frictional pressure, allow oil to flow more efficiently and reduce the amount of energy needed for pumping. Innospec recently opened a new facility in Texas specifically designed to produce DRAs. The company has also developed a new gasoline additive designed to improve the operation of gasoline direct injection (GDI) engines.

In the area of marine fuels, new legislation encourages the shipping industry to reduce emissions and move to lowersulfur fuels. Innospec is a leader in the marine fuel additives category with a range of products that help meet stricter emission standards, provide faster and more efficient fuel combustion, keep damaging deposits from building up in engines and tanks, and enhance fuel stability and quality.

With quality management and a diverse and innovative product line, Jim believes Innospec is a Quality Value holding with longterm potential.

Of the three categories, Undiscovered Gems generally comprise the core, the one that typically generates the best performance because they provide growth at an inexpensive price. In many cases, such as Monro (mentioned earlier), Fallen Angels “graduate” to the Undiscovered Gems category if they’ve been held in the strategy for a year or two and have recovered. Regardless of where they start out, Undiscovered Gems usually experience the most improvement in fundamentals, earnings growth and, eventually, P/E multiple expansion.

Performance aside, Jim generally considers Fallen Angels and Undiscovered Gems to comprise a single large category, and he tries to maintain the combination at 70% to 80% of the Small Cap Value strategy. If that percentage trends down toward 70%, he views it as a sign that the economy is entering into a more mature phase. Fallen Angels and Undiscovered Gems are the companies that Wasatch’s growth managers are most likely to find attractive at some point in the companies’ lifecycles. These are companies that have the most in common with those in other Wasatch strategies, although the timing of purchases and sales may be quite different.

Regardless of the phase of economic development, Jim views the volatility inherent in smallcap investing as a “perpetualmotion machine” with good companies continually stumbling and falling into one of his three categories.

The investment philosophy and process of the Wasatch Small Cap Value strategy grew out of a challenge inherent in growthstock investing. The Wasatch growth managers have a capturedearnings philosophy, meaning that they are typically trying to capture 15% or better earnings growth at most times in the companies’ lifecycles.

Particularly with small companies, which are inherently volatile, this quest for consistent growth can sometimes be elusive. Small companies are often younger. They could have less stable revenue bases, and their product lines might be narrower. All of these characteristics set small companies up for periods in which earnings will be volatile.

For a growth portfolio manager trying to maintain a high overall earningsgrowth rate, it can be a problem when a company stumbles. If the portfolio holds too many companies with declining earnings, the portfolio won’t meet its growth target. A value portfolio, however, might be the ideal place for some of the companies that no longer meet the qualifications for a growth portfolio. In 1997, the Wasatch team decided to exploit this opportunity in the market and create the firm’s first value strategy.

Of his own involvement in the Small Cap Value strategy’s launch, Jim says, “Honestly, Wasatch had been having a hard time fitting me into a growth team. I was more attracted to contrarian ideas.” At the time, Jim had been researching a semiconductor company, which was owned in several Wasatch strategies. One day in early 1997, he recalls, the company had a big blowup. But rather than dump the stock, a longtime Wasatch portfolio manager bought more. “And I thought, yes, that’s how you’re supposed to respond,” says Jim, who adds that the stock eventually went on to rise by many times the manager’s purchase price.

Later in 1997, Jim was tapped to work on the new Wasatch Small Cap Value strategy as a Research Analyst. He became a Portfolio Manager two years later, worked with comanagers for several years, and became the sole Portfolio Manager in 2008.

The Small Cap Value strategy was created so Wasatch could own highquality companies that had temporary earnings issues. These were companies that might not fit in Wasatch’s growth strategies. In addition, Jim found there were companies whose stocks were unjustly oversold because momentum investors were fleeing. In hot growth areas, it isn’t unusual to see momentum investors pile in, push stock prices up, and then rapidly head for the exit on a small or shortterm disappointment.

“My Wasatch colleagues and I have been researching highquality smallcap companies for decades,” Jim says. “We’ve already done the work. We’ve even visited many of them, or had their management teams in our office. But most value managers probably haven’t found these companies yet. The companies haven’t hit the quantitative value screens. And the value managers haven’t been doing the work to understand these companies. So I believe I have an informational edge versus the traditional value managers.

A notable stock in the Small Cap Value strategy that falls somewhere between the Fallen Angels and Undiscovered Gems categories is Sleep Number Corp. (formerly known as Select Comfort). The company sells its brand of adjustable, airfilled mattresses through its own stores as well as online. While Jim is wary of retailers operating in crowded markets, particularly apparel retailers, he says Sleep Number offers differentiated mattresses and employs a skilled sales force that’s trained to explain the benefits of unique products.

While a standard foam mattress is “boughta consumer who needs a new mattress visits a store, lies down on a few and makes a choicea Sleep Number mattress, which is airfilled and adjustable, must be “sold.” The combination of a unique product and a specialized sales force, as well as proprietary technologies such as its trademarked SleepIQ® system that provides feedback to users on how well they slept, represents another moat protecting Sleep Number in a crowded field.

Jim says the company is especially wellpositioned to take advantage of the wellness trend and the growing recognition by millennialswho’ve shown an appetite to spend money on innovative technologiesthat sleep is an important aspect of health. He adds that the company is wellmanaged and has done everything he expected including investing in the business through enterpriseresource planning, completely refreshing all its beds and flushing out the inventory of old beds. The new Sleep Number 360® Smart Bed is designed to automatically adjust firmness, comfort and support and is integrated with an adjustable base and builtin foot warmers. Jim has been gradually increasing the strategy’s position in Sleep Number.

Over the past decade or so, as growth stocks have outperformed, Jimrelative to his value peershas benefited from managing a “growthier” value portfolio. But with the growth rally getting somewhat long in the tooth, he’s been focusing more attention on traditional value ideasincluding names in industrials and financials.

When William Faulkner said, “In writing, you must kill all your darlings,” he might as well have been talking about portfolio management, where studies have shown that investorseven professionalstend to hold a losing stock for too long as they look for validation of their decision to buy the stock in the first place.

Jim spends a lot of time focusing on his sell discipline, which was shaped by reading about the research of Andrea Frazzini. “That research gave me intellectual permission to sell when I’m wrong,” Jim explains. “I’m faster to sell than I was in the past. If it turns out I’m wrong, I want to be wrong quickly and move on.

To understand the case for “growthy” value investing, consider the example of an investor who says to himself that if a stock goes up and he thus owns a larger position at a worse price, then surely if the stock goes down he should like it even more at a better price. “That’s not always the case in value investing,” Jim says, explaining that smart investors should always try to be wrong quickly, recognizing when their original thesis is no longer valid.

Conversely, when buying a stock, it’s not always necessary to call the bottom. Jim says a stock that’s already fundamentally improving can often provide a better riskadjusted return because there’s evidence of success: “While you might originally have had hope or a story, latereven at a higher priceyou may have a proven thesis in play that the overall market might not fully appreciate for several months, or perhaps longer.

Another point of differentiation the Wasatch Small Cap Value strategy has versus its peers is that the strategy appears to have more growthlike characteristics. The first reason is that many of the companies in the strategy were growth stocks historically. But the strategy had the opportunity to buy them at value prices. Second, because the Wasatch Small Cap Value strategy tends to hold positions longer than other value strategies, a company often will have retaken its growth characteristics by the time Jim exits the position. And third, Jim generally seeks higherquality stocks with better balance sheets and business models than those held in many other value strategies. These three factors combined give the Wasatch Small Cap Value strategy a somewhat “growthier” feel than its competitors. But the quality orientation of the strategy appears to have helped temper the downside volatility that the broader market has periodically experienced over the past several years.

The strategy is often overweighted in industrials such as niche machinery, equipment and transportation companies, where Jim has identified management teams that can execute well in competitive industries. Health care is another sector in which the strategy typically has been overweighted, based on the proprietary research and investment experience of Wasatch overall. Many of the strategy’s Fallen Angels are found in the businessservices industry, which is also overweighted.

The Wasatch Small Cap Value strategy usually has little or no exposure to utilities, which do not lend themselves to the Fallen Angel or Undiscovered Gem approach. Similarly, the strategy is underweighted in heavily cyclical companies.

Within the materials sector, the strategy is overweighted in the chemicals industry, owing in part to its investment in Innospec, and it has no holdings in other materials industries such as metals and mining and paper and forest products.

Historically, the strategy also had been underweighted in financials, including banks. Financials comprise almost 30% of the Russell 2000 Value Index, a reflection of the fragmented U.S. banking system, which includes an enormous number of small banks. Jim finds banking to be a very competitive industry with few barriers to entry and low overall growth. However, given the lower valuations for banks recently, he has uncovered some aboveaverage banking companies at attractive prices.

The strategy is underweighted versus the Index in the realestate sector, where the strategy’s holdings consist entirely of equity real estate investment trusts.

One of the key questions confronting Jim as a value manager is how, when looking for attractive prospects among stocks that have stumbled, to avoid investing in companies that have declined because, in fact, they have truly poor prospects. To begin, he seeks to buy stocks at historically low valuations. He generally feels comfortable buying a stock at a fiveyear low valuation based on the pricetobook value or EVtosales ratios.

Conversely, when those same ratios are at historical highs, Jim will consider selling. Additionally, as noted earlier, he avoids companies that have both balancesheet and businessmodel stresses to overcome.

Another consideration that Jim takes into account is competition. If a company is confronted with exceptionally strong competition, what he calls “hypercompetition,” he will avoid the company. When a stock is down because of hypercompetition, he says, that’s something even the best management team may not be able to overcome. He cites forprofit education as an example of an industry that has been too competitive to be of interest.

Although he owns retailing companies, including Monro and Sleep Number, Jim is more cautious today versus several years ago when he generally would have been investing more aggressively in apparel retailers, for example. Because of the internet and the decline of mall traffic, he believes apparel retailing has become a very difficult area for value investors.

When buying a new company with both quality and value characteristics, Jim typically starts with a 1% to 1.5% position and usually attempts to get to 2% to 3% as he sees fundamentals improve, hopefully before the price moves up. As the stock price appreciates further, he may trim the position to keep it below a typical 4% to 6% maximum. When selling, he generally works the same process
in reverse, scaling back to about 1% before exiting the
position entirely.

As for being a value manager in a growth shop, Jim says it gives him the freedom to buy great highquality growth companies when they’re down and the freedom to own them long enough to more fully harvest the potential gains. “The type of portfolio I manage should have wide appeal,” he says. “Many people want to own growth stocks, they just don’t want to overpay for them. And that’s what I try to offer.


Investing in small cap funds will be more volatile and loss of principal could be greater than investing in large cap or more diversified funds. Investments in value stocks can perform differently from the market as a whole and from other types of stocks and can continue to be undervalued by the market for long periods of time. Investing in foreign securities, especially in emerging markets, entails special risks, such as currency fluctuations and political uncertainties, which are described in more detail in the prospectus. There is no assurance that the investment process will consistently lead to successful investing.

Information in this document regarding market or economic trends or the factors influencing historical or future performance reflects the opinions of management as of the date of this document. These statements should not be relied upon for any other purpose. Past performance is no guarantee of future results, and there is no guarantee that the market forecasts discussed will be realized.

The Wasatch Small Cap Value Fund’s investment objective is longterm growth of capital. Income is a secondary objective, but only when consistent with longterm growth of capital.

Portfolio holdings are subject to change at any time. References to specific securities should not be construed as recommendations by the Funds or their Advisor. Current and future holdings are subject to risk.

As of June 30, 2019, the percentage of net assets the Wasatch Small Cap Value strategy had invested in Arbor Realty Trust, Inc. was 2.4%, Ebix, Inc. was 1.3%, MFA Financial, Inc. was 2.2%, Monmouth Real Estate Investment Corp. was 1.4%, Monro, Inc. was 3.3%, Innospec, Inc. was 3.3%, Sleep Number Corp. was 1.6% and Summit Hotel Properties, Inc. was 2.6%.

As of June 30, 2019, the Wasatch Small Cap Value strategy was not invested in, Inc. or Paytm Mobile Solutions plc.
Tire Rack, Inc. is a privately hel
d company.

ALPS Distributors, Inc. is not affiliated with Wasatch Global Investors.

Earnings growth is a measure of growth in a company’s net income over a specific period, often one year.

Earnings per share or EPS is the portion of a company’s profit allocated to each outstanding share of common stock. EPS growth rates help investors identify companies that are increasing or decreasing in profitability.

Enterprise value (EV) is a measure of a company’s value calculated as market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents. The EV (enterprise value)-tosales ratio is enterprise value, as defined above, divided by annual sales. Each ratio is a measure of a company’s expensiveness.

The financial crisis of 200708, also known as the Global Financial Crisis (GFC) and 2008 financial crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s.

Intrinsic value or intrinsic worth is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, taking into account tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value.

Longterm debt to capital is a company’s debt as a percentage of its total capital. Debt includes all shortterm and longterm obligations. Total capital includes the company’s debt and shareholders’ equity, which includes common stock, preferred stock, minority interest and net debt.

Operating margin equals operating income divided by revenues, expressed as a percentage.

The pricetobook value ratio is used to compare a company’s book value to its current market price.

The pricetoearnings (P/E) multiple, also known as the P/E ratio, is the price of a stock divided by its earnings per share.

Return on assets (ROA) measures a company’s profitability by showing how many dollars of earnings a company derives from each dollar of assets it controls.

Return on equity (ROE) measures a company’s efficiency at generating profits from shareholders’ equity.

Valuation is the process of determining the current worth of an asset or company.

The Russell 2000 Value Index measures the performance of Russell 2000 Index companies with lower pricetobook ratios and lower forecasted growth values. The Russell 2000 Index is an unmanaged total return index of the smallest 2,000 companies in the Russell 3000 Index, as ranked by total market capitalization. The Russell 3000 Index is an unmanaged total return index of the largest 3,000 U.S. companies based on total market capitalization. The Russell 2000 Index is widely used in the industry to measure the performance of small company stocks. You cannot invest directly in these or any indexes.

The Wasatch Small Cap Value strategy has been developed solely by Wasatch Global Investors. The Wasatch Small Cap Value strategy is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies.

All rights in the Russell 2000 Value Index vest in the relevant LSE Group company, which owns the Index. Russell® is a trademark of the relevant LSE Group company and is used by any other LSE Group company under license.

The Index is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Wasatch Small Cap Value strategy or the suitability of the Index for the purpose to which it is being put by Wasatch Global Investors.