Exploring Small-Cap Value Investing with Lauren Taylor Wolfe of Impactive Capital

Brown Advisory CIO Perspectives

In this episode of CIO Perspectives, Sid Ahl and Erika Pagel speak with Lauren Taylor Wolfe, co-founder and managing partner of Impactive Capital, a $3 billion active impact investing firm. Lauren explains her journey of active investing in smaller companies, emphasizing value and sustainability. She discusses the challenges and opportunities in the small-cap space, which has been underperforming amid a market dominated by mega-cap tech stocks and AI-driven momentum. She also shares her optimism about the robust pipeline of investment opportunities in sectors like health care, consumer and industrial markets.

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Definitions:

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a measure of core corporate profitability. EBITDA is calculated by adding interest, tax, depreciation, and amortization expenses to net income.

Free cash flow (FCF) is a company's available cash repaid to creditors and as dividends and interest to investors. Management and investors use free cash flow as a measure of a company's financial health.

Free cash flow yield is a financial solvency ratio that compares the free cash flow per share a company is expected to earn against its market value per share. The ratio is calculated by taking the free cash flow per share divided by the current share price.

Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of the fund and compares its risk-adjusted performance to a benchmark index.

Beta represents the slope of the regression of the fund’s monthly returns vs. the benchmark. This is a measure of sensitivity to the market (benchmark). A lower number indicates a lesser reliance on market returns to generate overall fund returns.