B. Riley Diversity Equity Fund

Frequently Asked Questions

What is the specialization of B. Riley FBR, Inc.?

Founded by Bryant Riley in 1997, B. Riley FBR, Inc. is a FINRA-licensed broker dealer, and a wholly-owned subsidiary of B. Riley Financial, Inc. (NASDAQ: RILY), a  publicly traded, diversified financial services company offering collaborative solutions to the capital raising and financial advisory needs of public and private companies and high net worth individuals. 

The firm is nationally recognized for its highly ranked proprietary equity research, through its specialization in fundamental research on smaller companies, which are often overlooked or ignored by larger firms. Learn more about B. Riley FBR at www.brileyfbr.com.

What is the history  of the B. Riley FBR Research Group?

B. Riley FBR has been researching small and micro-cap companies for over two decades.  The Research Group is well known in the institutional investor space for their work on companies that are underfollowed and misunderstood by the rest of Wall Street. Small-cap focused hedge funds and other mutual fund managers depend on B. Riley FBR‘s research recommendations when selecting companies for their investment portfolios. To learn more about the B. Riley FBR Research Group, click here.

Why is a concentrated portfolio of small and micro-cap equities important to an individual’s investment strategy?

Relative to large and mid-cap equities, small and micro-cap stocks may provide a better opportunity for alpha generation. While there has been a widespread movement by investment advisors to the lower fee index of Exchange-Traded Funds (ETF), we continue to believe in active management in the small and micro-cap space.  The amount of small and micro-cap company research accessible to investors pales in comparison to the over-abundant data available about larger companies.  Due to the aforementioned information flow, deep fundamental research analysis provides an opportunity to outperform small and micro-cap index ETFs over long periods of time.  To learn more about investing in smaller companies, click here.

How does the B. Riley Diversified Equity Fund differentiate itself from its competitors?

The B. Riley Diversified Equity Fund uniquely combines the deep fundamental research of a team of analysts with a rules-based approach to portfolio management.  Each senior analyst in the B. Riley FBR Research Group is responsible for choosing two to three companies for the Fund’s portfolio at any given time.  The Fund is equally-weighted and rebalanced as changes are made by the analysts.  Traditional mutual fund management calls for portfolio managers to select companies for a portfolio and weight them as they see fit.  Naturally, many other funds have fewer resources to allocate toward fundamental research, which we view as the most important aspect of portfolio management. Discover the B. Riley advantage here.

What influenced constructing the Fund in this fashion?

The Fund leverages the B. Riley FBR Research Group’s team of over 20 experienced analysts who diligently study companies in the Fund’s portfolio. Additionally, they have relationships with the management teams with many of the companies and speak with them regularly.  The portfolio generally consists of 25-50 securities represented in the Buy List that represent the B. Riley FBR Research Group’s “top picks”.  We consider this resource to be a unique competitive advantage.  Click here to learn more about the Fund.

How do you view the Portfolio you are providing to your investors? 

It is virtually impossible for a retail investor or their financial advisor to monitor thousands of small and micro-cap companies and build a portfolio with a high probability of outperforming the market.  The B. Riley FBR Research Group has been selling their research product to institutional investment managers for almost 20 years.  The B. Riley Diversified Equity Fund is an ancillary byproduct of the work done by the Research Group.  The Fund is designed to provide individual investors with a sophisticated vehicle which participates in investment ideas traditionally reserved for institutional hedge fund managers.

How does a rules-based approach to portfolio management benefit the Fund’s performance?

In the movie Wall Street (1987), Gordon Gekko said to Bud Fox, “First lesson in business is don't get emotional about stocks - it clouds your judgement.”  While the quote is from a fictional movie, this statement can be applied in the real world. A rules-based approach mitigates certain aspects of human nature by forcing periodic profit taking and purchasing companies at attractive valuations despite negative short sighted market outlooks.  Our analysts focus on long term investment horizons, this  strategy is designed to prevent a portfolio manager from being a prisoner of the moment.  The small and micro-cap equity space is volatile.  We pride ourselves on being able to see past the current quarter and look toward future trends in small and growing companies.

 

PRINICPAL RISKS

Risks of Investing in Common Stocks. Overall stock market risks may affect the value of the Fund. Factors such as domestic economic growth and market conditions, interest rate levels, and political events affect the securities markets. When the value of the Fund’s investments goes down, your investment in the Fund decreases in value and you could lose money.

Risks of Investment Selection and Asset Allocation. The Fund’s ability to achieve its investment objective is dependent on the Adviser’s ability to identify profitable investment opportunities for the Fund. Additionally, the Fund is subject to the risk that the Adviser may allocate the Fund’s assets to sectors or securities selected by the Research Group as “Buy” securities that do not perform as well as other sectors or securities.

Sector Risk. Sector risk is the possibility that all stocks within the same group of industries will decline in price due to sector-specific, market, or economic developments. The Fund may be overweight in certain sector or sectors at various times.

Portfolio Turnover Risk. The Fund’s investment strategy involves active trading and will result in a high portfolio turnover rate. A high portfolio turnover can result in correspondingly greater brokerage commission expenses. A high portfolio turnover may result in the distribution to shareholders of additional capital gains for tax purposes, some of which may be taxable at ordinary income rates. These factors may negatively affect performance.

Rebalancing Risk. Rebalancing activities, while undertaken to maintain a Fund’s investment risk-to-reward ratio, may cause the Fund to underperform other funds with similar investment objectives.

Risks of Small and Mid-Capitalization Companies. The Fund may invest in the securities of mid, small or micro capitalization companies, which may subject the Fund to additional risks. The earnings and prospects of these companies are more volatile than larger companies. These companies may have limited product lines and markets, more volatile market prices, less capital, a shorter history of operations, less experienced management, and may experience higher failure rates than do larger companies. The earnings and prospects of smaller companies are more volatile than larger companies, and smaller companies may experience higher failure rates than do larger companies. Additionally, the trading volume of securities of such companies is normally less than that of larger companies and, therefore, may disproportionately affect their market price, tending to make prices fall more in response to selling pressure than is the case with larger companies.

New Adviser Risk. The Adviser to the Fund has not previously managed a mutual fund. This lack of experience may raise the risk associated with an investment in the Fund.

Adviser Affiliate. Clients should be aware that the Adviser, B. Riley FBR, Inc. and certain entities owned or controlled by or affiliated therewith are, directly or indirectly, owned and controlled by B. Riley Financial, Inc., and controlled by Bryant R. Riley, Chairman of B. Riley Financial, Inc. The Adviser intends to engage B. Riley FBR, Inc. to effectuate the Fund’s trading and investment activities. The Adviser and investment adviser representatives of the Adviser, as well as its other affiliates use or will use B. Riley FBR's proprietary research.

Focus Risk. While the Fund is diversified for purposes of the Investment Company Act of 1940, the Fund may, at times, may hold the securities of a small number of issuers. At such times where the Fund may hold the securities of fewer issuers, the performance of these issuers could have a substantial impact on the Fund’s performance.

Limited History of Operations Risk. The Fund was recently formed in February 2014. Accordingly, investors in the Fund bear the risk that the Fund may not be successful in implementing its investment strategy, may not employ a successful investment strategy, or may fail to attract sufficient assets to realize economies of scale, any of which could result in the Fund being liquidated at any time without shareholder approval and at a time that may not be favorable for all shareholders. Such liquidation could have negative tax consequences.

Investors should consider the investment objective, management fees, risks, charges and expenses of the Fund carefully before investing. The Prospectus contains this and other information about the Fund. For a current Prospectus, call (310) 966-1446 or visit www.brileyamfunds.com. Please read the Prospectus carefully before you invest. Distributed by First Dominion Capital Corp. Member FINRA