Kestrel Investment Management Corporation
selects stocks primarily from the universe of companies undergoing
voluntary restructurings. We identify situations where management
believes their stock to be undervalued and is taking positive
actions to change this situation. In addition to restructurings,
we may devote a portion of the portfolio to investments in
groups of companies with a common characteristic which we
believe has not been properly priced in the market.
Our more than twenty years of investment experience
and research has convinced us that the stocks of companies
undergoing voluntary restructurings are more likely to experience
superior long-term appreciation when compared to investments
in similar companies that have not undergone such restructuring.
Within the universe of companies undergoing voluntary restructuring,
we have a strong value orientation focusing on cash flow and
financial screens to select our portfolio investments. We
typically seek to hold individual portfolio investments for
18 months to three years which, we believe, offers us the
opportunity to take advantage of the premiums that may result
from the short-term focus of the market as a whole.
We do not diversify solely to achieve industry
or sector representation. The industry makeup of the portfolio
is driven by the companies and industries represented in our
strategic screens. We tend to focus primarily on companies
within the small-cap universe, because we believe the stocks
of companies which do not receive a high level of institutional
coverage are more likely to experience pricing inefficiencies
and, thus, offer a greater opportunity for profit.
We avoid stock market timing and macroeconomic forecasting, believing that our comparative advantage resides in discerning unrecognized microeconomic trends and identifying misperceived factors. This approach causes us to stay fully invested, producing the maximum potential for excess returns.