Small Cap Value Strategy


Baird Equity Asset Management’s Small Cap Value portfolio invests in domestic small-cap companies and seeks to provide superior risk-adjusted returns and consistently outperform the benchmark Russell 2000 Value Index over a full market cycle (typically 3–5 years). The portfolio comprises companies we expect to exceed street expectations and that trade at discounts to our proprietary calculations of fair value. To help control risks, the portfolio is generally diversified among companies in a broad range of industries and economic sectors.

Portfolio Construction

  • A concentrated portfolio of generally 40–50 stocks
  • A market cap range typically from $100 million to $2.5 billion at purchase 
  • Top holdings generally limited to 5% at cost, 8% at market
  • Sectors capped at 30% excluding financials 
  • A buy-and-hold approach

For more information, contact Rob Zwiebel or the Intermediary Specialist in your region.


Q1 2017 Small/Mid Value and Small Value Commentary

Most stock market averages marched higher in the first quarter of 2017, but the charge was primarily led by those segments of the market that lagged during last November's post-election euphoria. In fact, investors have become skeptical about the President's ability to cut taxes and boost infrastructure after the GOP healthcare bill failed in March. Although investors sold safe haven stocks and bonds after the election, those sectors such as utilities have outperformed so far this year as Treasury bond yields have fallen, reflecting the reality that economic growth and inflation may not be any stronger this year than before Trump took office. 

Fueling the rotation, has been the reality that although many soft economic indicators such as confidence has levitated, the hard economic data has been mixed prompting many economists to lower their expectations for Q1 GDP from 2.5-3% down to just 1% or so. Corporate profits, on the other hand, are expected to fare better boosted in large part by the energy sector on the heels of a rebound in oil prices from early 2016 lows. Still, industrial and material companies, which helped lead the rally in November, are expected to post broad declines in earnings this quarter. In many cases, the gap between confidence and earnings growth could make some stocks vulnerable for a pullback.

We made the case in last quarter's commentary that brief periods of robust returns for cyclical, lower-quality stocks are followed by multi-year periods of outperformance by higher-quality equities with better earnings consistency. Since December of last year, we have witnessed just such a change in market leadership. Have the winds shifted direction again for a long period of outperformance for our style of investing? The answer is unknown in the short run, but what we do believe is that disciplined investing in high-quality small- and mid-cap equities has outperformed over the long run. 

Read Full Small or Small/Mid Value Commentary