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 5–60 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

Q4 2016 Mid Cap Growth Commentary

Market Update

Uncertainty surrounding the presidential election, a relatively lackluster earnings reporting cycle and questions about a rate hike from the Federal Reserve paved the way for stocks to sell off in October, only to rally significantly in November. The rally was likely due to the confluence of the election’s conclusion, a boost in investor optimism, and better domestic and international economic data. Stocks flat-lined into the finish during December resulting in a modest quarterly gain.

Portfolio Commentary

Clients of the Baird Mid Cap Growth portfolios experienced a modest increase during the fourth quarter, in line with our primary benchmark, the Russell® Midcap Growth Index. Within the portfolio, sector results included positive contributions from financials, consumer discretionary, energy, and producer durables, while the information technology, materials, healthcare, and consumer staples sectors lagged. Our sector thoughts and a more in depth description of portfolio changes follow.

The financial services sector, for the second straight quarter, drove the portfolio’s largest relative outperformance. Returns were led by the two bank holdings, East West Bancorp and First Republic, which experienced a significant post-election bump as interest rates moved higher across the yield curve with the Fed tightening in December for the first time in a year and the 10-year treasury rate rising from 1.6% to 2.5%. These moves negatively impacted REITS, an area where we held no exposure. Our bank holdings have been in place for some time because we believe the management teams can compound returns by growing earnings at attractive rates relative to their valuation levels. We think there is more room to go for these companies, but also acknowledge the risk of a price pullback given the magnitude of the move up in such a short period of time. During the quarter, we added two new names, MarketAxess and Broadridge Financial, while trimming Fiserv and Affiliated Managers. MarketAxess offers a leading electronic platform for bond trading. We expect increased penetration of electronic trading, with MarketAxess growing faster than the market and expanding revenue streams as its platform strengthens. Broadridge serves key roles behind the scenes in the financial services industry, operating as the leading provider of proxy voting services as well as trade clearing and processing. We expect management to deliver an attractive return profile by building on strong market positions and a high level of recurring revenues augmented with disciplined capital management. Our positioning as we begin 2017 suggests we are underweight the sector, however, we note that when excluding REITs we are overweight what we view as traditional financial services companies.

Read Full Baird Mid Cap Growth Commentary