The Opportunity Fund invests in small-cap companies by finding undervalued, out-of-favor small-cap companies with sustainable, competitive positioning in their industry and a strong ability to generate high free cash flow throughout economic cycles, Ronovech says. He also has a key focus on the operational discipline of the management team. "We combine that compelling valuation with those qualitative fundamental factors to put together a portfolio," Ronovech says. "The focus is really on value to start and to find where the deepest values are in the market. It looks at both the company relative to market, the industry, and where the businesses have traded over market cycles." The Paradigm Opportunity Fund is focused, with only 32 positions in the portfolio. The fund is currently overweight technology, consumer discretionary and health care relative to the Russell 2000. It is underweight a handful of sectors, including industrials. Ronovech says that when the fund is buying a position, he has a focus "on the upside potential from fair value but, just as important, the downside risk." "As you're combing through, the focus is on quality and identifying the businesses with those characteristics," Ronovech says. "When you're buying value, you're protecting yourself from that risk a little bit, but you want to be buying a higher-quality business to protect you from operational and other business risk." That style helped Ronovech and the fund weather a brutal 2011 for small-cap stocks. The fund finished 2011 with a return of minus 1.3% as domestic small-cap stocks were crushed during the market selloff that followed the debt-ceiling crisis and subsequent downgrade of the U.S. credit rating by Standard & Poor's. That performance bested the Russell 2000, which fell more than 4% last year. "It's great to have numbers that are strong over the year or over a shorter time period," Ronovech says, "but our focus at the firm and for the fund is to deliver over multi-year periods for clients through very different market environments. We want to protect them to the downside and to capitalize when markets are stronger and recover."