James F. Woods, Jr. - Schneider Cap · PDF fileCIO role and responsibilities ... Chesapeake...

LARGE CAP VALUE PRESENTATION

James F. Woods, Jr.

3Q14

Managing Director

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PRESENTATION OUTLINE

Firm Profile

Investment Philosophy

Investment Process

Performance Summary

Portfolio Review

Agenda and discussion topics

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FIRM PROFILE

Value investing is our sole focus

Founded in 1996; 100% employee-owned

$1.3 billion under management (09/30/14)

Deep expertise in a single investment discipline

Experienced team of investment professionals

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16 years average industry experience

HIGHLY QUALIFIED PROFESSIONALS

CIO role and responsibilities New idea generation Directs analysts’ research efforts “Hands-on” portfolio management Final decision making

Arnie Schneider III, CFA CIO & Portfolio Manager

Prasanth Athipatla Technology, Health Care,

Telecommunications

Gary Soura, CFA Aerospace, Transportation,

Utilities, Retail

Chris Gillespie Capital Goods, Coal, Materials,

Consumer Staples Joe Plevelich, CFA

Energy, Regional Banks, Community Banks

Analyst role and responsibilities Industry specialization and expertise Fundamental stock specific research Perform detailed financial analysis Probe investment case in depth

Rob Maton, CFA Financials, Real Estate, Homebuilders

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CONSISTENT INVESTMENT PHILOSOPHY

Strong convictions support the investment process

Produce solid long-term performance through investing in undervalued

companies with potential for positive fundamental change

Engage in rigorous independent research that challenges consensus views and conventional thinking

Possess the confidence to express our insights in focused portfolios that reflect our best ideas

Sustain a thriving corporate culture that is built upon a single investment discipline, and concentrate all our energies on what we do best

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Five elements drive investment success

PROVEN INVESTMENT PROCESS

Flows from a productive and creative research effort

New idea generation

Independent analysis

Ranking system

Portfolio construction

Rigorous sell discipline

Establishes an ambitious return hurdle for new holdings and factors in downside risk

Enables the best ideas to meaningfully impact performance

Captures gains and helps make mistakes less costly

Identifies undervalued securities with potential for positive fundamental change

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Identify promising opportunities that challenge consensus views

PRODUCTIVE IDEA GENERATION

Daily effort by the CIO to uncover new ideas Experience and expertise in a wide range of companies

and industries; e.g., technology

Utilize a variety of databases, publications and contacts

Employ database screening on a limited basis

Analysts investigate high-potential candidates

New idea generation


Ranking system



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SOLID RESEARCH FOUNDATION

“Is it cheap? Do we anticipate positive change?”

Company-specific situations Change in leadership

Growth initiatives

Lower cost structure

Timely share repurchases

Industries at a cyclical bottom Constrained capacity or supply

Rebounding demand

Recovering pricing and margins

Fewer competitors

Research Output Identify drivers of fundamental improvement and earnings recovery

Comprehensive financial models

Objective earnings and valuation estimates

New idea generation


Ranking system



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EFFECTIVE RANKING SYSTEM

New purchases must enhance expected return of portfolio

In-depth analysis determines a target price for current holdings and ranks expected returns from high to low

New purchases must rank above median in appreciation potential

Upside potential is weighed against stock-specific risk assessment focusing on the balance sheet and stress testing

Final decisions are made by the CIO

Projected EPS x Projected P/E = Target Price

(Target Price - Current Price) x 100

(Current Price) = % Appreciation

Valuation Ranking

Median

Accept

Reject

High

Low

New idea generation


Ranking system



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ACTIVE PORTFOLIO CONSTRUCTION

Our best ideas will have a meaningful performance impact

Portfolio level

35-50 holdings

Cash level generally 1%-5%

Committed to our process throughout investment cycle

Sector/security

Individual security weights generally 1%-5%, at cost

Weights are determined by upside potential, stock-specific risk, and confidence level

Decisions are based on stringent investment criteria, not benchmark tracking

New idea generation


Ranking system



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RIGOROUS SELL DISCIPLINE

Capitalize on success and make mistakes less costly

Security reaches pre-determined price target

New idea emerges with superior investment potential

Price appreciation lifts company or industry exposure above threshold

Underlying investment case is permanently diluted or delayed

New idea generation


Ranking system



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An approach with distinguishing qualities

Deep value investment discipline

Productive new idea generation

Emphasize fundamental research insight

Anticipate positive change

Focus on company-specific opportunity/risk

Nimble and streamlined decision process

Lukewarm commitment to deep value

Struggle to prune portfolio laggards

Rely on database screening

Depend on reversion to the mean

Inclined to “hug the benchmark”

Decision making encumbered by committees

VIEWING THE VALUE WORLD DIFFERENTLY

Defining characteristics of Schneider Capital

Common features of value managers

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PORTFOLIO CHARACTERISTICS AND TOP TEN HOLDINGS (SUPPLEMENTAL INFORMATION)*

Top Ten Holdings

Large Cap Value

Russell 1000 Russell 1000 Value Index Index

Valuation Price/Earnings - 1 Year Forecast EPS 14.7x 15.0x Price/Book 1.0x 1.8x Price/Sales 0.9x 1.4x Earnings Growth Long-Term Growth Forecast - I/B/E/S 11.0% 9.0% Size Market Cap. - $ Weighted Average $48.1B $111.5B

16.5x 2.5x 1.7x

11.3%

$115.4B # Holdings 34 1,032 690

September 30, 2014 * The information provided above supplements the Large Cap Value Composite GIPS compliant presentation provided on pages 20 and 21.

Sector weightings, portfolio characteristics, market cap weightings and holdings are based on a representative account. Such data may vary for each client in the strategy due to asset size, market conditions, client guidelines and diversity of portfolio holdings. The representative account is the account in the composite that we believe most closely reflects the current portfolio management style for this strategy. Frank Russell Company is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. This is a presentation of SCM. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. Frank Russell Company is not responsible for the formatting or configuration of this material or for any inaccuracy in SCM’s presentation thereof.

Name Sector

SunTrust Banks Inc. Financial Services 7.4 % Weatherford Intl. Inc. Energy 6.8 Marriott International Inc. Consumer Discretionary 6.2 Bank of America Corp. Financial Services 5.9 Citigroup Inc. Financial Services 5.9 Chesapeake Energy Corp. Energy 4.8 JPMorgan Chase & Co. Financial Services 4.4 Toll Brothers Inc. Consumer Discretionary 4.2 Carnival Corp. Consumer Discretionary 4.2 Peabody Energy Corp. Energy 4.1

53.8 %

% of Total

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Large Cap Value

Russell 1000 Value Index

Allocation % as of September 30, 2014

% of Total

SECTOR ALLOCATION VS. STYLE BENCHMARK (SUPPLEMENTAL INFORMATION)*

* The information provided above supplements the Large Cap Value Composite GIPS compliant presentation provided on pages 20 and 21.

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LARGE CAP VALUE PERFORMANCE VS. STYLE BENCHMARK

Periods ending September 30, 2014

Tota

l Ret

urn

(Gro

ss o

f Fee

s)

Large Cap Value Composite (gross)


(Net of Fees) -4.8% 1.6% 12.0% 20.0% 8.6% 3.7% 8.8%

Total Return 3Q14 YTD 1 Year 3 Years 5 Years 10 Years Since Inception

* Periods greater than one year are annualized; returns include cash and cash equivalents and reinvestment of any dividends or interest income. * SCM’s Large Cap Value composite is compared to the Russell 1000 Value Index, a subset of the Russell 1000 Index. Please refer to the Disclosures on page 20 for a complete description of the Index. * Total returns and other statistical information are preliminary and subject to change following final verification. * Past performance is not indicative of future results. * The current fee schedule is included in this brochure and in Form ADV Part II. * The information provided above supplements the Large Cap Value Composite GIPS compliant presentation provided on pages 20 and 21.

3Q14 YTD 1 Year 3 Years 5 Years 10 Years Since Inception (6/1/99)

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SUMMARY

1. We do one thing and one thing only – deep value equity investing.

2. Consistent investment philosophy and discipline since 1996. 3. Single decision maker – Arnie Schneider – with over 25 years of portfolio management

experience 4. Experienced, dedicated research team – no internal competition for resources. 5. Nimble boutique firm – streamlined information flow enhances timely decision making. 6. Focus on long-term investing, not short-term trading – patience and persistence are

paramount to our style of investing. 7. Invest in companies that are selling at a large discount to what we believe is their true

intrinsic value. 8. Invest in companies that we believe will begin the return to a normalized level of earnings

within 12-18 months – not to an unrealistic level of expansion or success. 9. Focused on being the best investment manager, not the biggest – history of closing products

to new investors to preserve portfolio integrity. 10. 100% Employee owned – no external financial or organizational influences.

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LARGE CAP VALUE PORTFOLIO (SUPPLEMENTAL INFORMATION)*

As of September 30, 2014 * The information provided above supplements the Large Cap Value Composite GIPS compliant presentation provided on pages 20 and 21.

Portfolio holdings are subject to change without notice. The portfolio holdings presented represent securities held as of the period indicated, and may not be representative of current or future investments. This material is provided for illustrative purposes only and should not be construed as an offer to sell, or the solicitation of offers to buy, or a recommendation for any security.

COMMON STOCKS COMMON STOCKS

Consumer Discretionary Carnival Corp 4.6 % Materials and Processing Alcoa 0.6 % Lennar Corp 3.6 % Marriott International Inc 6.8 % Office Depot 1.4 % Producer Durables Aegean Marine Petrol Network Inc

Boeing Co Bombardier Inc Navistar International Corp

1.2 0.6 % 1.4 % 0.3 % 3.5

% Taylor Morrison Home 0.5 % Toll Brothers Inc 4.6 %

21.5 % %

Energy Arch Coal Inc 2.2 % Chesapeake Energy Corp 5.2 % Consol Energy Inc 1.5 % Devon Energy Corp 2.7 % Peabody Energy Corp 4.5 %

% Weatherford International Ltd 7.4 %

Technology Symantec Corp 1.4 %

23.6 Utilities FirstEnergy Corp. 0.4 %

Financial Services Allstate Corp 3.2 % American International Grp 4.2 % Assured Guaranty Ltd 2.7 %

Other iShares Russell 1000 Value Index 0.4 %

Bank of America Corp 6.4 % Barclays PLC ADR 1.9 % Citigroup Inc 6.4 % Columbia Property Trust 0.8 % Total (Excluding Cash) 100.0 % First American Corp 1.3 % Hartford Financial Svcs Grp 4.2 % Huntington Bancshares Inc 0.5 % JPMorgan Chase & Co 4.8 % Northstar Realty Finance Corp REIT 2.0 % Regions Financial Corp 2.0 % SunTrust Banks Inc 8.1 %

48.4 %

Pct. Assets Pct. Assets

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Arnold C. Schneider III, CFA President, Chief Investment Officer and Principal. Arnie founded Schneider Capital Management in 1996 and has a total of thirty years of investment experience. Arnie was previously a Senior Vice President and Partner of the Wellington Management Company. He started as an analyst in 1983, assumed portfolio management responsibility in 1987, and later became head of the Value team for institutional accounts and a number of mutual fund portfolios. He received a BS in Finance from the McIntire School of Commerce at the University of Virginia and is a past President of the Financial Analysts of Philadelphia. Prasanth Athipatla Senior Vice President and Principal. Prasanth covers technology, health care and telecommunications. He was previously an Associate in the Investment Banking Technology practice at RBC Capital Markets. Prasanth graduated from the Indian Institute of Technology, received a Masters degree from the University of Illinois, and earned his MBA in Finance from the University of Chicago. Christopher J. Gillespie Senior Vice President and Principal. Chris covers capital goods, coal, materials and consumer staples. He began his investment career in 1999. Prior to joining Schneider Capital, Chris worked at RRH Capital Management and Massachusetts Financial Services. Chris graduated Cum Laude from Boston College with a BS in Economics and received an MBA in Finance from Columbia University. Robert F. Maton, CFA Senior Vice President and Principal. Rob covers financials, real estate and homebuilders. Prior to entering the investment industry in 2002, he was a Vice President at Meadowbrook Insurance Group. Rob graduated from Grand Valley State University and earned an MBA degree from the University of Michigan. Joseph M. Plevelich, CFA Senior Vice President and Principal. Joe covers energy, regional banks and community banks. He joined Schneider Capital in 2004. Joe received a B.S. in Economics with a dual concentration in Finance and Management from the University of Pennsylvania. Gary P. Soura, CFA Senior Vice President and Principal. Gary covers aerospace, transportation, utilities and retail. He was previously a Value team member at Wellington Management, having joined from The Vanguard Group, where he started his career in 1989. He graduated from Pennsylvania State University with a degree in Finance and received an MBA from St. Joseph’s University. . James F. Woods, Jr. Managing Director, Marketing & Client Services. Jim has over twenty years experience in institutional investment consulting, client service, consultant relations and sales. He has held senior positions at SEI Investments, Pilgrim, Baxter & Associates and Janus Capital Group. Jim graduated from The University of Notre Dame with a BBA in Accounting and earned an MBA in Finance from the Wharton School of the University of Pennsylvania.

EXPERIENCED INVESTMENT PROFESSIONALS

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Large Cap Value On the first $25 million 0.70% On the next $25 million 0.50% Over $50 million 0.40%

FEE SCHEDULE

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LARGE CAP VALUE COMPOSITE PERFORMANCE DISCLOSURE

Large Cap Value Composite December 31, 2013

* Composite dispersion has not been presented for periods prior to December 31, 2000 due to the composite having less than five accounts for the entire year presented.

Frank Russell Company is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. This is a presentation of SCM. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. Frank Russell Company is not responsible for the formatting or configuration of this material or for any inaccuracy in SCM’s presentation thereof.

Composite Benchmark

Net Gross 3-yr St Dev (%) 3-yr St Dev (%)

2013 30.65 31.07 32.53 9 1.35 19.76 12.7 $951 57% $1,655

2012 16.31 16.74 17.51 10 0.84 22.31 15.51 $942 57% $1,664

2011 -16.6 -16.34 0.39 10 0.57 27.86 20.69 $1,081 61% $1,765

2010 17.16 17.57 15.51 15 0.37 $1,498 57% $2,632

2009 41.98 42.47 19.69 17 1.42 $1,744 61% $2,862

2008 -54.60 -54.42 -36.85 18 1.15 $1,267 62% $2,059

2007 - 0.03 0.34 - 0.17 25 0.45 $3,229 63% $5,160

2006 23.73 24.22 22.25 24 0.38 $3,080 57% $5,443

2005 4.42 4.84 7.05 28 0.26 $2,386 56% $4,271

2004 25.27 25.80 16.49 26 0.48 $1,942 51% $3,830

2003 58.64 59.34 30.03 14 0.52 $639 30% $2,143

2002 -19.80 -19.43 -15.52 14 0.36 $409 26% $1,596

2001 22.61 23.38 - 5.59 7 1.72 $199 12% $1,612

2000 42.44 43.43 7.02 4 N/A $35 3% $1,153

1999 (6/1 - 12/31) 4.12 4.48 -2.13 1 N/A $7 1% $502

Percentage of Firm Assets

(%)

Total Firm Assets ($ Millions)Year Annual Total Return %


Number of Portfolios

Composite Dispersion %

Composite Assets at End of Period

($Millions)

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LARGE CAP VALUE COMPOSITE PERFORMANCE DISCLOSURE

Disclosure: Schneider Capital Management (“SCM”) claims compliance with the Global Investment Performance Standards (GIPS) and has prepared and presented this report in compliance with GIPS standards. SCM has been independently verified for the periods January 1, 1997 through December 31, 2013.

Verification assess whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and(2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The Large Cap Value Composite has been examined for the periods June 1, 1999 through December 31, 2013. The verification and performance examination reports are available upon request

1. SCM is an independent investment adviser registered under the Investment Advisers Act of 1940. Registration does not imply a certain level of skill or training. SCM was founded on December 5, 1996 and is 100% employee owned. 2. The Large Cap Value Composite (the “Composite”) includes all actual, fee-paying, discretionary portfolios with a mandate to invest primarily in common stocks of companies that have value characteristics and market capitalizations that are generally within the range of companies in the Russell 1000 Index at the time of initial purchase. The creation date of the Composite is June 1, 1999. 3. The Large Cap Value Composite is compared to the Russell 1000 Value Index, a subset of the Russell 1000 Index, which measures the performance of the stocks of the 1,000 largest companies in the Russell 3000 Index, based on market capitalization. The Russell 1000 Value Index measures the performance of those stocks of the Russell 1000 Index with lower price-to-book ratios and lower relative forecasted growth rates. The returns of the index include the reinvestment of dividends but do not account for transaction costs or other expenses which an investor might incur in attempting to obtain such returns. You cannot invest directly in these indices. Benchmark returns are not covered by the report of independent verifiers. 4. The Large Cap Value Composite is one of several composites managed by SCM. All fee-paying discretionary portfolios, including those portfolios no longer with the firm, are included in at least one composite. SCM's list of composite descriptions is available upon request. 5. Total Firm Assets as used herein consist of the aggregate value of all discretionary and non-discretionary portfolios under management at the end of the measurement period. 6. Rates of return are expressed in US dollars. Composite results reflect the reinvestment of any dividend or investment income and include returns on all cash and cash equivalents. Returns are presented net of any non-reclaimable withholding taxes. Partial year returns have not been annualized. 7. SCM’s policies for valuing portfolios, calculating performance and preparing compliant presentations are available upon request. 8. Composite Dispersion is measured using an asset-weighted standard deviation of gross returns of the portfolios that were included in the Composite for the entire measurement period. For those annual periods with less than five portfolios included for the entire year, dispersion is not presented as it is not considered meaningful.9. Gross of fee returns are presented before management fees and reflect the deduction of direct trading expenses. A Client’s return will be reduced by the advisor fees it will incur in the management of its investment advisory accounts.10. The Large Cap Value Fee Schedule: 0.70% on the first $25 million; 0.50% on the next $25 million; 0.40% over $50 million. Net of Fee returns reflect the deduction of direct trading expenses and the actual management fee as per the investment advisory agreements. Fees paid by certain clients may be different from the current fee schedule. SCM's investment advisory fees are described in Part 2A of Form ADV.11. From 2002-2011, the Large Cap Value Composite includes one portfolio whose gross and net returns reflect the deduction of custody and other administrative expenses. 12. Effective January 1, 2012, the Large Cap Value Composite includes one portfolio whose net return reflects the deduction of custody and other administrative expenses. 13. The three-year annualized ex-post standard deviation measure the variability of the composite (using gross returns) and the benchmark for the preceding 36-month period. The three-year annualized ex-post standard deviation is not required to be presented for periods prior to 2011.14. The performance data quoted above represents past performance; past performance is not indicative of future results.

James F. Woods, Jr. - Schneider Cap · PDF fileCIO role and responsibilities ... Chesapeake...

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