Prosper Stars & Stripes

The Prosper Stars & Stripes fund employs a research-driven fundamental long/short equity strategy focused on small and mid cap US stocks ($1-1.5bn market cap range). In fact, less diversified small businesses are inherently more affected by the drivers that create (or destroy) equity value over time, enabling an optimal environment for long/short stock pickers. The team believes the most important drivers of equity value are the strength or weakness of a company's business model, the advantages or challenges created by their financial structure, and the quality of the fiduciaries involved. Accordingly, the team seek to be long companies that exhibit pricing power, initiate their own demand, or establish a healthier ecosystem amongst themselves, their clients and the end customer. Equally, they seek short opportunities in those companies that face increasing pressure from new competition or secular/cyclical headwinds. Starting from an investment opportunity set of over 5000 companies, the PM filters the universe by sectors, size, liquidity constraints to come up with a ‘focus list’ of approximately 300 companies (best long and short ideas) which are monitored on an ongoing basis and periodically analysed via an internal checklist of fundamental factors to determine whether each is a viable candidate to enter the portfolio. In the next step, the team run detailed fundamental bottom-up analysis on each company to develop base case, bear and bull scenarios which helps to evaluate risk-reward opportunities and ultimately position sizing. Core long ideas are generally sized at 3-5% (1-2.5% for shorts), with the final portfolio typically comprising 30-50 longs and 30-50 shorts. The fund’s net and gross exposure are managed within a relative tight/stable band of 40-50% and 120-140% respectively.