Small-Cap Growth

Growth Equity

Investment Strategy

Denver Investments’ Small-Cap Growth strategy is based on the belief that equity prices reflect expectations for earnings and cash flow. The team believes that identifying companies with superior growth prospects and fundamental stability early leads to consistent outperformance over time. Through rigorous independent fundamental research, the lead portfolio managers construct a portfolio designed to generate alpha primarily through stock selection.

Portfolio Management

We seek to invest in growth companies with disruptive products or services, large market opportunities and strong competitive positions that are less sensitive to macroeconomic factors – Brian C. Fitzsimons, CFA

Brian C. Fitzsimons, CFA

Brian C. Fitzsimons, CFA

Partner, Director of Small-Cap Growth Research, Portfolio Manager

Mitch S. Begun, CFA

Mitch S. Begun, CFA

Partner, Portfolio Manager, Analyst

Portfolio Construction Guidelines:

  • Approximately 70-100 stocks
  • Typical position size of 1% to 3%; maximum of 5%
  • Sector sensitive: +/-10% of absolute sector weight of the benchmark
  • Fully invested: target less than 10% in cash
Benchmark:

Russell 2000® Growth Index

Investment Minimum:

$1,000,000

See composite descriptions and index descriptions. The guidelines listed are representative of the product but are not considered restrictions. Specific client guidelines may differ.

Investment Team

Brian C. Fitzsimons, CFA
Brian C. Fitzsimons, CFA

Partner, Director of Small-Cap Growth Research, Portfolio Manager

2005 to Present: Denver Investments
2004 to 2005: Newmont Capital Ltd., Finance Manager
2002 to 2004: A.G. Edwards & Sons, Inc., Equity Analyst
2002: Berger Financial Group, Equity Analyst
1999 to 2002: Women’s Pro Softball League, Director of Finance/Controller
2000 to 2001: Marsico Endowment Fund, Portfolio Manager
Education:

BS – Metropolitan State College of Denver; MBA – University of Denver
Member of CFA Institute and CFA Society Colorado

Mitch S. Begun, CFA
Mitch S. Begun, CFA

Partner, Portfolio Manager, Analyst

2003 to Present: Denver Investments
2000 to 2002: Raymond James & Associates, Equity Research Associate
Education:

BSBA – University of North Carolina at Chapel Hill
Member of CFA Institute and CFA Society Colorado

Mark S. Truelsen, CFA
Mark S. Truelsen, CFA

Vice President, Analyst

2001 to Present: Denver Investments
2000 to 2001: RJ Falkner & Co., Junior Research Analyst
1999: Skyline Asset Management, Marketing Assistant
1998 to 1999 Scudder Kemper Investments, Investment Representative
Education:

BA – University of Illinois at Urbana-Champaign
Member of CFA Institute and CFA Society Colorado

Georgene L.A. Pedrie
Georgene L.A. Pedrie

Vice President, Senior Equity Trader

2002 to Present: Denver Investments
1987 to 2002: NDB Capital Market, Sales Trader
Education:

BA and MA – University of Northern Colorado

Performance (%)

  Monthly Returns (%)
Periods Ended: 12/31/2017
Annualized Returns (%)
Periods Ended: 12/31/2017
1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
Small-Cap Growth (gross) 0.65 3.58 28.74 28.74 10.93 17.09 -
Small-Cap Growth (net) 0.57 3.32 27.48 27.48 9.83 15.93
Russell 2000 Growth Index 0.12 4.59 22.17 22.17 10.28 15.21 -
Small-Cap Growth
Monthly Returns(%) as of 12/31/2017 Gross Net
1 Month 0.65 0.57
3 Months 3.58 3.32
YTD 28.74 27.48
Annualized Returns(%) as of 12/31/2017 Gross Net
1 Year 28.74 27.48
3 Years 10.93 9.83
5 Years 17.09 15.93
10 Years -
Russell 2000 Growth Index
Monthly Returns(%) as of12/31/2017 Gross Net
1 Month 0.12 -
3 Months 4.59 -
YTD 22.17 -
Annualized Returns(%) as of 12/31/2017 Gross Net
1 Year 22.17 -
3 Years 10.28 -
5 Years 15.21 -
10 Years -

Calendar Year Performance (%)

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
Small-Cap Growth (Gross) 28.74 9.81 -3.45 5.23 53.21 12.09 -1.80 - - -
Small-Cap Growth (Net) 27.48 8.72 -4.41 4.18 51.74 11.00 -2.74 - - -
Russell 2000 Growth Index 22.17 11.32 -1.38 5.60 43.30 14.59 -2.91 - - -
Small-Cap Growth
Year Gross Net
2017 28.74 27.48
2016 9.81 8.72
2015 -3.45 -4.41
2014 5.23 4.18
2013 53.21 51.74
2012 12.09 11.00
2011 -1.80 -2.74
2010 - -
2009 - -
2008 - -
Russell 2000 Growth Index
Year Gross Net
2017 22.17 -
2016 11.32 -
2015 -1.38 -
2014 5.60 -
2013 43.30 -
2012 14.59 -
2011 -2.91 -
2010 - -
2009 - -
2008 - -

Data is based on the firm’s composite for this strategy. Past performance does not guarantee future results and future performance may be lower or higher than the performance presented, including the possibility of loss of principal. Composite returns for one year or greater are annualized.

Returns are computed and stated in U.S. dollars. Performance is calculated net of withholding taxes on foreign dividends and interest, if any, and reflect the reinvestment of dividends and other earnings.

Gross of fee returns are calculated gross of management and custodial fees and net of transaction costs. Net of fee returns are calculated net of management fees and transaction costs and gross of custodian fees. As of 1/1/15, net of fee returns were calculated by deducting the maximum applicable advisory fee in effect, pro-rated on a monthly basis. From 1/1/08 to 12/31/14, net of fee returns were calculated by deducting the maximum applicable advisory fee in effect, pro-rated on a quarterly basis. Prior to this date, net of fees returns were calculated using actual annual client fees, pro-rated on a quarterly basis.

The Russell 2000® Growth Index is an unmanaged index measuring the small growth segment of the U.S. equity universe that is constructed to provide a comprehensive and unbiased barometer of the small-cap growth market. FTSE Russell is the source and owner of the Russell Index data. See Terms of Use for additional disclosure.

Index returns are provided to represent the investment environment existing during the time periods shown. For comparison purposes, the index is fully invested, which includes the reinvestment of dividends and capital gains. The returns for the index do not include any transaction costs, management fees or other costs. Composition of each individual portfolio may differ from securities in the corresponding benchmark index. The index is used as a performance benchmark only, as Denver Investments does not attempt to replicate an index. See composite descriptions.

Denver Investment Advisors LLC (dba Denver Investments) is an independent investment advisor registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Denver Investments provides fundamental investment management services to various institutional and private investors and mutual funds.

Denver Investments claims compliance with the Global Investment Performance Standards (GIPS®).

See performance disclosure for a presentation that complies with the requirements of the GIPS standards. Please contact us to request a complete list and description of all firm composites.

Manager Commentary as of 12/31/2017

 

Market Overview

Equity markets continued to push higher in the fourth quarter, with nearly all broad U.S. indexes closing 2017 at, or near, all-time highs. Underneath the strength of the overall markets, there was significant divergence in the type of stock that performed well in 2017. The Russell 2000® Growth Index’s return was 22.17% in 2017 (up 4.59% for the fourth quarter) versus the Russell 2000® Value Index’s 7.84% return in 2017 (up 2.05% for the fourth quarter). This was the mirror opposite of 2016 when small-cap value stocks trounced small-cap growth stocks by over 20%. Taking a step back, the Russell 2000® Growth Index has outperformed the Russell 2000® Value Index by over 2% annualized for the last five years and over 1% annualized during the last decade.

Contributors to Return

The three sectors that contributed most to the portfolio’s performance relative to its benchmark in the quarter were information technology, financials, and industrials. The portfolio’s best-performing stock in the quarter was Globus Medical Inc., a medical device company that develops products to promote healing in patients with spinal disorders. The stock outperformed during the quarter primarily due to the prospects for the company’s recent Excelsius robot-assisted surgery platform launch. We remain excited about the opportunity for robotics in the spinal surgery products market. Another strong performer was MGP Ingredients Inc., a high-quality spirits producer. The company experienced strong demand for its products in the recent quarter and continues to build aged product inventory to satisfy future demand. We believe the growth outlook for MGP remains strong. Proto Labs Inc., a leading provider of rapid molding and printing technologies for prototypes and on-demand production parts, outperformed in the quarter as its industrial end markets remained healthy. We believe Proto Labs’ services offer significant efficiencies within the product development process.

Detractors from Return

The three sectors that detracted most from the portfolio’s performance relative to its benchmark in the quarter were health care, consumer discretionary, and telecommunication services. The portfolio’s worst performing stock in the quarter was Acadia Healthcare Co. Inc., a provider of behavioral healthcare services. The stock underperformed in the quarter after the company struggled with staffing issues in its U.K. segment. Although increased labor costs are likely to linger over the coming quarters, we believe that long-term growth trends remain intact, as evidenced by a solid U.S. outlook. Nevro Corp., a leading provider of spinal cord stimulation implants for the treatment of chronic pain, underperformed during the quarter due to a modestly slowing end market. We believe the slowdown to be more transient in nature and that growth should begin to accelerate based on the potential for new applications for Nevro’s products through 2018 and beyond. Glaukos Corp., an ophthalmic medical device company focused on the treatment of glaucoma, underperformed during the quarter over concerns surrounding the competitive environment. Although projections for the next two quarters have been reduced given competitive issues, we continue to be constructive on the company’s next generation offering scheduled to be launched later this year.  

Outlook and Positioning

As of the end of 2017, the portfolio was overweighted primarily in the information technology and financial sectors and underweighted primarily in the industrials and health care sectors.

The current economic expansion is the third longest ever recorded in the United States. It now sits a at eight and half years, setting the backdrop for what has been a remarkable bull market. While we believe we are in the later stages of the economic cycle, tax reform likely improves the short-term economic outlook in 2018. As always, we are focused on companies that we believe can thrive by offering innovative and disruptive products or services. Ultimately, we believe these companies are less sensitive to economic cycles and are a strong foundation for our growth portfolios. Happy New Year and we wish you a prosperous 2018.

 



Stock Performance (3 months ended 12/31/2017)
Top 5 Stocks Average Weight Contribution to Return
Globus Medical, Inc. Class A 1.76% 0.58
LendingTree, Inc. 1.46 0.49
EPAM Systems, Inc. 2.36 0.48
MGP Ingredients, Inc. 1.65 0.38
Proto Labs, Inc. 1.42 0.36
Bottom 5 Stocks Average Weight Contribution to Return
Acadia Healthcare Company, Inc. 1.33% -0.60
Nevro Corp. 1.54 -0.43
Glaukos Corp 1.42 -0.39
Prothena Corp. Plc 0.61 -0.36
MACOM Technology Solutions Holdings, Inc. 0.96 -0.33
Top 5 Stocks
Globus Medical, Inc. Class A
Average Weight 1.76%
Contribution to Return 0.58
LendingTree, Inc.
Average Weight 1.46
Contribution to Return 0.49
EPAM Systems, Inc.
Average Weight 2.36
Contribution to Return 0.48
MGP Ingredients, Inc.
Average Weight 1.65
Contribution to Return 0.38
Proto Labs, Inc.
Average Weight 1.42
Contribution to Return 0.36
Bottom 5 Stocks
Acadia Healthcare Company, Inc.
Average Weight 1.33%
Contribution to Return -0.60
Nevro Corp.
Average Weight 1.54
Contribution to Return -0.43
Glaukos Corp
Average Weight 1.42
Contribution to Return -0.39
Prothena Corp. Plc
Average Weight 0.61
Contribution to Return -0.36
MACOM Technology Solutions Holdings, Inc.
Average Weight 0.96
Contribution to Return -0.33

The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will vary, and initial investments may be worth more or less than their original investment. To obtain current performance as of the most recent month-end and for important performance disclosures, please view the fact sheet.

The securities identified on this chart were determined after consistently calculating the weight of each holding in the representative account multiplied by the rate of return for that holding during the period. The securities identified do not represent all of the securities purchased, sold or recommended for advisory clients. You may obtain a complete list showing the contribution of each holding in the representative account to the overall account performance during the period presented by emailing us or calling 303.312.5000.

The Manager Commentaries contain certain forward-looking statements about the factors that may affect future performance. These statements are based on portfolio management’s predictions and expectations concerning certain future events and their expected impact on the strategy, such as performance of the economy as a whole and of specific industry sectors, changes in the levels of interest rates, the impact of developing world events, and other factors that may influence the future performance of the strategy. Portfolio management believes these forward-looking statements to be reasonable, although they are inherently uncertain and difficult to predict. Actual events may cause adjustments in portfolio management strategies from those currently expected to be employed.

See performance disclosure for a presentation that complies with the requirements of the GIPS standards. Please contact us to request a complete list and description of all firm composites.

All indices are unmanaged and investors cannot invest directly in an index. View index descriptions.

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