Mr. Gardiner: Schafer Cullen Capital Management was started in 1983, as a separately managed account business. Cullen Capital Management, an affiliate of Schafer Cullen started in 2000, applies the same investment strategies to mutual fund vehicles. This will be Cullen Capital Management's fourth fund.
In 2000, it launched the first fund, the Cullen Value Fund, which was purchased about four years ago by Pioneer Investments, which now distributes that fund, and Cullen Capital Management continues as the sub-advisor. There are three additional mutual funds owned 100% by Cullen Capital, and which we advise and market ourselves-the Cullen High Dividend Value Fund, the Cullen International High Dividend Value Fund and now the latest, the Cullen Small Cap Value Fund. As you can see, the firm will manage almost any strategy as long as it's value; and so we have a lot of different variations on the theme, applying our value investment discipline to different market segments.
Small Cap Value is actually a strategy that has been managed within Schafer Cullen in separately managed accounts since about 1994, giving us 15-plus years of experience and a track record in applying a value philosophy to the small-cap segment of the stock market. The idea behind launching a mutual fund on the strategy is to make the strategy much more available to people. In separately managed accounts, our minimum account size is 250,000, and because small cap is often a 5-15% allocation in someone's portfolio, he or she has to have a fair sized overall portfolio to make our SMA minimum. The minimum for the Cullen Small Cap Value fund is 1,000, so that should make it much more accessible to a wider audience.
As is the case with all our strategies, it starts with a discipline of buying stocks that trade at a low valuation multiple. And we define that as the bottom 20% of the stock market on a price-to-earnings or a price-to-book value basis. As we screen the market, that would be a typical starting filter for us. The multiple we most focus on, whether P/E or P/BV or both, in terms of determining cheapness often depends on the industry and also where we are in the economic and earnings cycle. For example, over the past year when earnings declined tremendously and that picture was murky, price-to-book was a helpful ground, especially when you considered it relative to this multiple historically and in relation to long-term returns on capital. After we've established our initial valuation perspective, we then focus a lot of our research work on elements of quality. As a start, we look at the company's financial position, including liquidity, leverage and maturity schedule for that debt.
Our portfolios turn over 20-25% per year, so we are holding stocks for 4-5 years on average. Over that period, there are two sources of return. The first is buying stocks cheap relative to their intrinsic value and having the price gap close, and then the second is the value creation that occurs at the companies over our holding period. This second source is perhaps even more important in our Small Cap Value strategy, as more of the return comes from capital appreciation over time relative to the other strategies. So, we want companies that we think can compound earnings and net assets over time, often more so than the market implies, because the market in the near-term is more often than not about trading in anticipation of or in reaction to current headlines. The great thing about our investment timeframe is you can really bring financial analysis to bear in understanding what makes a company tick in terms of its value creation mechanism. We spend a lot of time in understanding a company's return on capital-the consistency, trend and sustainability of returns and how they relate to the competitive position of the business and the structure of the industry. And we also assess the company's growth opportunity, its ability to improve returns and/or reinvest back in the business at equally attractive returns. Often we are looking at a development-at the company or industry-wide-that has positive implications for the business's return and reinvestment profile. Again, often the market may not be capturing this, because the development will play out over many years. Jim Cullen summarizes this concept as the "catalyst" or the "story" for the investment.
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