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.