Mid Cap Growth Strategy

OVERVIEW

The Baird Mid Cap Growth Strategy invests in U.S. mid-cap companies and is managed with a strong emphasis on risk control and a long-term perspective. The team strongly believes in having a true mid-cap product, with the majority of the portfolio invested in companies between $2B and $15B in market cap. The primary investment goal is to provide consistent, superior-to-market returns at a risk posture less than that of the market (vs. the Russell Midcap Growth Index). The team does this by finding companies for inclusion in the portfolio that have better growth prospects and capital structures than peers.

Portfolio Construction

  • A concentrated portfolio of generally 50–60 stocks
  • A majority of market cap range from $2 billion to $15 billion
  • The average position is 1%–3%, not to exceed 5% 
  • Sector weights 75%–125% relative to the benchmark, generally limited to 30% of portfolio
TEAM

For more information, contact Todd Haschker or the Intermediary Specialist in your region.

COMMENTARY

Q1 2017 Mid Cap Growth Commentary

Market Update

Buoyed by improving global economic activity and confidence measures, stocks rose during the first calendar quarter of 2017. While spillover from last year’s Presidential election was likely responsible for at least a portion of the strong lift in consumer and business confidence, foreign economies, most notably China and the Eurozone also showed an uptick in growth. Domestic activity was strong enough for the Federal Reserve to again raise short term rates, a signal that the economy is performing well enough to continue withdrawing some of the policy accommodation put in place during the financial crisis.

Portfolio Commentary

Clients of the Baird Mid Cap Growth portfolios enjoyed both solid absolute and relative returns during the period, when compared with our primary benchmark, the Russell® Midcap Growth Index. The performance contribution was rather broad based, as six of eight economic sectors showed positive relative results. Our sector thoughts and a more in depth description of portfolio changes follow.

The consumer discretionary sector drove the largest outperformance during the quarter. The announced acquisition of Mobileye by Intel certainly provided a meaningful boost, but was only part of the story as stocks in several industry groups contributed in what was a mixed quarter for many consumer companies. Important contributions were made by Fortune Brands and Pool Corporation, which are exposed to favorable housing trends. Restaurant holdings Panera and Domino’s are both executing well and driving industry-leading results and Burlington’s positioning in the off-price retail channel continued to be one of the few places in retail to thrive. On the negative side of the ledger lululemon reacted poorly to a softer sales outlook as the company was not able to outrun a difficult apparel and retail environment. Auto-related companies, including O’Reilly and LKQ, struggled on a relative basis and we trimmed both positions to move capital into other holdings within the sector, including Panera and lululemon. We continue to look for areas with favorable spending profiles, working to maintain a good diversity of end-market exposure. In light of that strategy, we purchased Vail Resorts, the market leader in ski resort operations. The company is competitively positioned in a fixed-supply industry, affording it pricing power, and we like the differentiated exposure it gives us to higher-end leisure spending. Other changes included the sale of our position in Mobileye on the aforementioned sale and a trim of Hasbro on meaningful strength and to manage position size against growing expectations. Overall net selling in the sector was offset by the strong relative performance and the portfolio remains equal weight to the benchmark.

Read Full Baird Mid Cap Growth Commentary