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

Q2 2017 Mid Cap Growth Commentary

Market Update

Improvement in global growth and the resulting lift in corporate earnings set the stage for solid stock market returns in the second quarter of 2017. The Federal Reserve again raised short-term rates, supported by further improvement in the labor market, and the European Central bank noted better economic conditions, a possible foreshadowing of a retreat from their easy money policies. Against those developments, Congress continues to wrestle with replacement legislation for healthcare, and weak commodity prices sit counter to higher business and consumer confidence measures. The translation of confidence to tangible spending activity is likely key to second half market performance. 

Portfolio Commentary

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

The consumer discretionary sector added to its strong showing in the first part of the year and again drove meaningful outperformance during the quarter. The news of Amazon's proposed acquisition of Whole Foods reverberated throughout the sector and compounded the effects of an already challenging consumer spending environment on many companies. An effort to reduce this risk in recent quarters proved beneficial as the portfolio was underweight traditional retailers. The announced acquisition of Panera Bread provided a nice performance boost, but was just one of several companies, including Ollie's Bargain Outlet, lululemon, Domino's and Cable One, that performed well. Adjustments made to the sector were fairly numerous reflecting the magnitude of price change that some companies experienced as well as the large reduction in the sector weight (approximately 400 basis points), occurring as a result of the annual benchmark rebalance at quarter end. Key changes included the sale of Panera on its announced sale to JAB and the sales of O'Reilly Automotive on the risk of slowing industry revenue growth and Ulta Beauty, as we viewed the lofty valuation to be increased risk given the disrupted retail space. We also trimmed Ollie's after a strong price move. We used these proceeds to add to Dollar General, Domino's, lululemon, and Pool Corporation. After a long run as the largest benchmark sector, the aforementioned rebalance knocked consumer discretionary back a spot behind technology in terms of absolute weight. The portfolio enters the back half of the year in a modest overweight position, with good diversification among consumer spending categories including auto-related, entertainment, home products, leisure, restaurants and retail.

Read Full Baird Mid Cap Growth Commentary