Baird MidCap Fund Celebrates 20 Years

Consistent leadership, investment process delivers strong long-term results for clients


Baird Equity Asset Management is proud to celebrate the 20th anniversary of the Baird MidCap Fund (BMDIX), one of the longest running mid-cap growth mutual funds with the same portfolio manager since inception.

  • The Fund was recently named to Morningstar’s Thrilling 36 list for the second consecutive year.
  • Chuck Severson, CFA, founding PM, and Ken Hemauer, CFA, comanage the fund and have worked together for twenty years.
  • Sound, long standing philosophy has helped investors through tougher market environments.

On this milestone, we took the opportunity to ask Severson and Hemauer a few questions.

What is unique about the mid cap asset class and how does your team approach it? icon: toggle
We all agree that mid-cap is a unique asset class; there are a lot of exciting companies with distinctive traits and compelling stories. Looking back over the years, and this surprises many, mid-cap stocks have outperformed large- and small-cap stocks by a meaningful margin and they have done so in a consistent manner. There are fundamental factors that have driven these impressive results. Mid-caps maintain almost all the growth rate of small-caps but are not as volatile and are able to grow 2-3x faster than large-caps. We also feel that it is an underappreciated asset class. Many asset allocation models and investors tend to combine the small- and large-cap asset classes believing this adequately covers mid-cap exposure which, in our view, by doing this they are accepting lower returns and greater risk.

Our team’s approach is to maintain a true mid-cap, traditional growth portfolio with high conviction (50-60 names) and high active share. We do rigorous research to ensure a high quality portfolio which to us means companies that have clear advantages – more profitable, faster growing and better financed than their peers – and we stay true to our investment principals regardless of the environment.
Chuck, for the past 20 years, this management team has been consistently led by you, describe the structure and why it works? icon: toggle
We have a focused, stable, and experienced investment team with all resources and effort dedicated to a singular investment style, high-quality growth. Our team is composed of industry veterans that have deep institutional knowledge of small- and mid-cap companies, as well as having spent the majority of their careers in the sectors they currently cover. Given the strong historical presence in each of their areas, our Portfolio Managers/Analysts have developed a strong network of industry contacts and expertise that lead to high conviction recommendations. Our investment team also has significant history together. We work incredibly hard to foster a team structure and culture that promotes collaboration, robust dialogue, and efficient decision-making.
Historically, describe the types of market environments this Fund outperformed and underperformed? icon: toggle
We are pleased with how our mid-cap growth portfolio has performed in varying market environments. The strategy has outperformed in broad based up-market years and has had particularly strong relative performance in more challenging market environments. In the 20-year history of the Baird MidCap Fund, the benchmark has had six negative calendar years of performance and Baird has significantly outperformed the benchmark in all but one of those years.

We have typically underperformed the market during speculative, more narrow, and momentum type environments when lower quality, high-debt and/or unprofitable stocks are in favor.
You expanded your growth offerings five years ago to include the Baird Small/Mid Cap Growth strategy and the mutual fund vehicle will have a three-year track record later this year. What is the story behind the launch of this Strategy and what differentiates it from peers? icon: toggle
Launching the Small/Mid Cap Growth Strategy was a natural extension for the team. We were already researching smaller companies as we looked for those that might grow into the mid-cap range. This asset class gives us the ability to invest in those companies sooner. The Strategy is also style pure with true exposure to both small- and mid-cap stocks, with high conviction (60-70 holdings) and high active share. Similar to our mid cap growth strategy, we strongly believe in our ability to drive outperformance in the SMID asset class.

Long-Term Relative Out-Performance

 
Average Annual Total Returns (%) 
Performance as of 12/31/2020
Institutional Class
1-Year 3-Year  5-Year 10-Year Since Inception  Morningstar
RatingTM (Overall)
Baird MidCap Fund (BMDIX) 34.81 21.82 19.31 14.81 9.41
(12/29/00)
 
Russell MidCap Growth 35.59 20.50 18.66 15.04 8.91  
Baird Small/Mid Cap Growth Fund (BSGIX) 44.57 - - - 30.23
(10/31/18)
N/A
Russell 2500 Growth 40.47 - - - 27.48 N/A

The Morningstar Rating for the Baird MidCap Fund, based on risk adjusted returns, are as follows: four stars overall out of 564 mid growth funds; four stars for the three-year period out of 564 mid growth funds; four stars for the five year period out of 504 mid growth funds and four stars for the 10-year period out of 383 mid growth funds, as of January 31, 2021.

Investors should consider the investment objectives, risks, charges and expenses of each fund carefully before investing. This and other information is found in the prospectus and summary prospectus. For a prospectus or summary prospectus, contact Baird directly at 866-442-2473. Please read the prospectus or summary prospectus carefully before investing.

Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment in the fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The funds' current performance may be lower or higher than the performance data quoted.

Baird MidCap Fund

The Fund focuses on growth-style stocks and therefore the performance of the Fund will typically be more volatile than the performance of funds that focus on types of stocks that have a broader investment style. The Fund may invest up to 15% of its total assets in U.S. dollar-denominated foreign securities and ADRs. Foreign investments involve additional risks such as currency rate fluctuations, political and economic instability, and different and sometimes less strict financial reporting standards and regulation. The Fund invests a substantial portion of its assets in the stocks of mid-capitalization companies. Mid-capitalization companies often are more volatile and face greater risks than larger, more established companies.

The Net/Gross expense ratios for the Baird MidCap Fund are 0.82/0.82, respectively. The net expense ratio is the gross expense ratio minus any reimbursement from the Advisor. The Advisor has contractually agreed to waive its fees and/or reimburse expenses at least through April 30, 2021, to the extent necessary to ensure that the total operating expenses do not exceed 1.10% of the Investor Class's average daily net assets and 0.85% of the Institutional Class's average daily net assets. Investor class expense ratios include a 0.25% 12b-1 fee.

The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth Index. Indices are unmanaged and are not available for direct investment.

The Morningstar RatingTM for funds, or "star rating", is calculated for managed products with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent 3-year period actually has the greatest impact because it is included in all three rating periods. © 2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Baird Small/Mid Cap Growth Fund

The Fund focuses on growth-style stocks and therefore the performance of the Fund will typically be more volatile than the performance of funds that focus on types of stocks that have a broader investment style. The Fund may invest up to 15% of its total assets in U.S. dollar-denominated foreign securities and ADRs. Foreign investments involve additional risks such as currency rate fluctuations, political and economic instability, and different and sometimes less strict financial reporting standards and regulation. The Fund invests a substantial portion of its assets in the stocks of small- and mid-capitalization companies. Small- and mid-capitalization companies often are more volatile and face greater risks than larger, more established companies.

The Net/Gross expense ratios for the Baird Small/Mid Cap Growth Fund are 0.85/2.10, respectively. The Net Expense Ratio is the Gross Expense Ratio minus any reimbursement from the Advisor. The Advisor has contractually agreed to waive its fees and/or reimburse expenses at least through April 30, 2021, to the extent necessary to ensure that the total operating expenses do not exceed 1.10% of the Investor Class's average daily net assets and 0.85% of the Institutional Class's average daily net assets. Investor class expense ratios include a 0.25% 12b-1 fee.

The Russell 2500 Growth Index measures the performance of those Russell 2500 companies with above average price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth Index. Indices are unmanaged and are not available for direct investment.