Small Cap/SMID – Diversified Small Cap Core -SCAP

Description

Objective

A diversified portfolio of small cap stocks, focused on identifying high-quality companies that are demonstrating improving fundamentals. The strategy’s goal is to provide attractive risk-adjusted returns versus the Russell 2000 over a full market cycle.

Investment Merits

1.   Exposure to the attractive returns of the small cap asset class while minimizing the risk

Small cap stocks have a history of outperformance, but come with higher risk. DSCC aims to mitigate that risk through diversification and our stock selection process.

2. Rules-based fundamental approach adds discipline and avoids behavioral biases

Many small cap stocks trade on stories in the short run, but in the long run fundamentals win out. The DSCC strategy is rules-based to focus on what matters in small caps.

3. Focus on companies that are demonstrating improving fundamentals and financial flexibility

Small cap stocks can grow quickly, but face greater cyclical risks. DSCC is designed to identify companies with strong fundamental performance and robust defensive characteristics.

4. Core approach has performed well in a range of market environments

DSCC has historically performed well in both growth and value environments, and has provided downside protection during weaker periods for small cap stocks.

Performance

June 30, 2020

Cornerstone
Gross Returns
Cornerstone
Net Returns
Russell 2000
QTD 30.17% 30.09% 25.42%
1 Year -5.39% -5.69% -6.63%
3 Year 4.44% 4.09% 2.01%
5 Year 6.85% 6.55% 4.29%
7 Year 9.75% 9.53% 7.17%
Since Inception* 11.91% 11.72% 9.17%

Annual compounding rates of return ending 6/30/2020
*Composite inception date is 6/30/2012

Cornerstone
Gross Returns
Cornerstone
Net Returns
Russell 2000 Value Composite
3yr St Dev
Russell 2000 Value
3yr St Dev
Composite assets $millions Accounts at period end Percent of firm assets Firm assets $millions Net Composite dispersion % of non fee paying clients % of bundled fees
2019 18.75% 18.33% 25.52% 16% 16% 5.15 5 or fewer 0.224% 2,300.8 N.A. 100.0 0.0
2018 -5.78% -6.06% -11.01% N.A. 16% 4.40 5 or fewer 0.203% 2,169.9 N.A. 100.0 0.0
2017 17.63% 17.21% 14.65% 13% 14% 4.67 5 or fewer 0.190% 2,458.6 N.A. 100.0 0.0
2016 23.38% 23.16% 21.31% 15% 16% 2.56 5 or fewer 0.098% 2,609.7 N.A. 100.0 0.0
2015 -1.17% -1.17% -4.41% 13% 14% 0.28 5 or fewer 0.008% 3,480.2 N.A. 100.0 0.0
2014 4.25% 4.25% 4.89% N.A. N.A. 0.28 5 or fewer 0.003% 9,154.3 N.A. 100.0 0.0
2013 48.81% 48.81% 38.82% N.A. N.A. 0.46 5 or fewer 0.006% 8,210.6 N.A. 100.0 0.0
2012* 8.39% 8.39% 7.20% N.A. N.A. 0.31 5 or fewer 0.005% 5,725.4 N.A. 100.0 0.0

*Composite inception date is 6/30/2012

Characteristics

June 30, 2020

The end result of the investment process is a portfolio comprised of companies with solid growth prospects trading at compelling valuation levels.

Characteristics DSCC Russell 2000
5-Year Historical Earnings Growth 11.6% 14.3%
Long-Term Estimated Earnings Growth 15.2% 14.9%
Price to Earnings (NTM) 17.4x 17.3x
Price to Cash Flow 24.8x 30.1x
Return on Equity 5.6% 2.0%
Net Debt to EBITDA 1.1x 2.5x
Dividend Yield 1.2% 1.8%
Market Cap ($ wtd) 1.7B 2.1B

Sector Weights

June 30, 2020

Sector weights can be materially different from the benchmark as a result of our bottom-up investment process

Disclaimer

Diversified Small Cap contains fully discretionary accounts that are comprised of around 230-250 securities that typically have capitalizations between $250M and $3B. For comparison purposes the composite is measured against the Russell 2000 Index. Prior to July 7, 2016, the composite was referenced as Diversified Small Cap Core. Simultaneous with the commencement of the AdvisorShares Cornerstone Small Cap ETF’s (NYSE Arca: SCAP) (the “Fund”) investment operations on July 7, 2016, a separate account (the “Predecessor Account”), which was managed by the same portfolio management team, converted into the Fund. Cornerstone Investment Partners is an independent, employee owned investment advisory firm.  Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Past performance is not indicative of future results. N.A.-Information is not statistically meaningful due to an insufficient number of portfolios in the composite for an entire year. The U.S. Dollar is the currency used to express performance. Returns are presented gross and net of management fees and include the reinvestment of all income.  Net of fee performance was calculated using actual management fees. The Diversified Small Cap Core composite incepted and created on June 30, 2012. The annual composite dispersion is an asset-weighted standard deviation calculated for the accounts in the composite the entire year. Cornerstone Investment Partners, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Cornerstone Investment Partners, LLC has been independently verified for the periods September 30, 2001 through March 31, 2020.  The verification report(s) is/are available upon request.  Verification assesses 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. Verification does not ensure the accuracy of any specific composite presentation. The firm maintains a complete list and description of composites. Additional information regarding the policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Benchmark returns are not covered by the report of independent verifiers.  To receive a list of composite descriptions and/or additional information, contact Cornerstone Investment Partners at 3438 Peachtree Rd, NE; Suite 900; Atlanta, GA 30326, 404-751-3850 or marketing@cornerstone-ip.com The general fee schedule for accounts is as follows: 1.00% on the first $10,000,000; 0.75% on the next $40,000,000 and 0.50% on the balance. Actual investment advisory fees incurred by clients may vary.