The Fund primarily invests in equity securities of small cap companies with market capitalization similar to the companies listed on the Russell 2000 Value Index at the time of investment. As of March 31, 2021, the market capitalization of companies listed on the Russell 2000 Value Index ranged from $67.7 million to $18.2 billion, and the median was $925.7 million. The Fund’s portfolio managers utilize a multi-factored valuation method to identify companies that are trading below intrinsic value or that may have been overlooked by the marketplace. The portfolio managers consider such factors as a company’s normal earnings power, its discounted cash flows, as well as various ratios, including the price-to-earning or price-to-book value ratios. The portfolio managers evaluate companies using fundamental, bottom-up research. The Fund seeks to preserve capital in down markets and to diversify its portfolio in traditional, as well as relative, value-oriented investments.
The portfolio managers look for stocks of companies that they believe are undervalued at the time of purchase. The managers use a value investment strategy that looks for companies that are temporarily out of favor in the market. The managers attempt to purchase the stocks of these undervalued companies and to hold each stock until it has returned to favor in the market and the price has increased to, or is higher than, a level the managers believe more accurately reflects the fair value of the company.
Companies may be undervalued due to market declines, poor economic conditions, actual or anticipated bad news regarding the issuer or its industry, or because they have been overlooked by the market. To identify these companies, the portfolio managers look for companies with earnings, cash flows and/or assets that are not accurately reflected in the companies market values. The managers may also consider whether the companies securities have a favorable dividend and/or interest-paying history and whether such payments are expected to continue.
The portfolio managers may sell stocks from the Fund’s portfolio if they believe:
• A stock no longer meets their valuation criteria
• A stock’s risk parameters outweigh its return opportunity more attractive alternatives are identified
• Specific events alter a stock’s prospects
Under normal circumstances, the Fund will invest at least 80% of its net assets in equity securities of U.S. and foreign small cap companies directly, or indirectly, through other investment companies (including exchange-traded funds) that invest primarily in U.S. and foreign small cap companies. Equity securities in which the Fund and underlying funds may invest include common stocks, securities convertible into common stocks (such as convertible bonds, convertible preferred stocks and warrants), and equity real estate investment trusts ( REITs ). Equity REITs trade like common stocks and invest directly in real estate, or other readily marketable securities that are issued by companies investing in, or that are secured by, real estate or real estate interests. The Fund may invest in foreign small cap companies directly or through depository receipts such as American Depository Receipts ( ADRs ) and Global Depository Receipts ( GDRs ). Generally, ADRs, in registered form, are denominated in U.S. dollars and are designed for use in the U.S. securities markets, while GDRs, in bearer form, may be denominated in other currencies and are designed for use in multiple foreign securities markets. ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying foreign securities, while GDRs are foreign receipts evidencing a similar arrangement.
The Fund may invest its remaining assets in equity securities of mid or large cap companies, preferred stocks, or derivative instruments such as put and call options and futures contracts, and in fixed income securities, including corporate bonds.
*The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.