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

Adam C. Bliss

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:

$10,000,000

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

Adam C. Bliss

Partner, Portfolio Manager, Analyst

2004 to Present: Denver Investments
1997 to 2003: Berger Funds, Co-Portfolio Manager and Equity Analyst
Education:

BSBA – Saint Mary’s College of California; MBA – University of Denver

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

Tara Stacy
Tara Stacy

Equity Trader

2009 to Present: Denver Investments
1999 to 2009: LGC Management, Accountant
Education:

BA – University of Colorado Denver; CFA Institute Claritas certificate

Performance (%)

  Monthly Returns (%)
Periods Ended: 5/31/2017
Annualized Returns (%)
Periods Ended: 3/31/2017
1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
Small-Cap Growth (gross) 0.72 5.74 14.27 29.48 6.43 13.32 -
Small-Cap Growth (net) 0.64 5.48 13.81 28.22 5.38 12.21
Russell 2000 Growth Index -0.91 2.11 6.31 23.03 6.72 12.10 -
Small-Cap Growth
Monthly Returns(%) as of 5/31/2017 Gross Net
1 Month 0.72 0.64
3 Months 5.74 5.48
YTD 14.27 13.81
Annualized Returns(%) as of 5/31/2017 Gross Net
1 Year 28.58 27.33
3 Years 10.13 9.04
5 Years 16.79 15.64
10 Years -
Russell 2000 Growth Index
Monthly Returns(%) as of5/31/2017 Gross Net
1 Month -0.91 -
3 Months 2.11 -
YTD 6.31 -
Annualized Returns(%) as of 5/31/2017 Gross Net
1 Year 19.71 -
3 Years 8.59 -
5 Years 14.36 -
10 Years -

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Small-Cap Growth (Gross) 9.81 -3.45 5.23 53.21 12.09 -1.8 - - - -
Small-Cap Growth (Net) 8.72 -4.41 4.18 51.74 11 -2.74 - - - -
Russell 2000 Growth Index 11.32 -1.38 5.6 43.3 14.59 -2.91 - - - -
Small-Cap Growth
Year Gross Net
2016 9.81 8.72
2015 -3.45 -4.41
2014 5.23 4.18
2013 53.21 51.74
2012 12.09 11
2011 -1.8 -2.74
2010 - -
2009 - -
2008 - -
2007 - -
Russell 2000 Growth Index
Year Gross Net
2016 11.32 -
2015 -1.38 -
2014 5.6 -
2013 43.3 -
2012 14.59 -
2011 -2.91 -
2010 - -
2009 - -
2008 - -
2007 - -

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 3/31/2017

 

Market Overview

Equity markets were mixed in the first quarter, with growth stocks bouncing back relative to value stocks after a significant divergence in 2016. To recap, the Russell 2000® Growth Index was up 11.32% versus a 31.74% increase by the Russell 2000® Value Index last year. The first quarter of 2017 saw the Russell 2000® Growth Index up 5.35%, as compared to a 0.13% decrease by the Russell 2000® Value Index. We believe the cyclical rally in the fourth quarter of 2016, driven by rising economic prospects post-election, was excessive. In our opinion, it presented an excellent opportunity to invest in strong, growth companies that are less dependent on economic growth to thrive.  

Portfolio Commentary

For the first quarter of 2017, Denver Investments’ Small-Cap Growth portfolio outperformed its benchmark, the Russell 2000® Growth Index, which returned 5.35%.

Contributors to Return

The three sectors that contributed most to the portfolio’s performance relative to its benchmark in the quarter were information technology, health care, and consumer discretionary. The portfolio’s best-performing stock in the quarter was Glaukos Corp., a developer of micro-invasive glaucoma surgery products designed to reduce fluid pressure in the eye. The stock outperformed in the quarter on the back of better-than-expected estimates of future results for its flagship iStent® offering. We believe continued physician acceptance will be driven by quality clinical outcomes, few alternative treatment options for persistently high fluid pressure in the eye, and recent beneficial insurance reimbursement changes. Nevro Corp., a developer of innovative spinal cord stimulation devices for the treatment of chronic pain, was also a significant contributor during the first quarter. Investors became more comfortable with the competitive environment given the reported clinical delay for its primary competitor’s similar offering. We believe that Nevro’s patent-protected Senza device delivers best-in-class clinical outcomes with fewer side effects and creates an opportunity for the company to expand its market. Zendesk Inc., a leading provider of customer service software, outperformed in the quarter after reporting strong results and guidance for future earnings estimates due to improved execution. We remain bullish on its growth prospects as we believe the company is disrupting legacy technologies in the service market and continuing to expand its available market through new product innovation.

Detractors from Return

Only one sector, energy, detracted from the portfolio’s performance relative to its benchmark in the quarter. The portfolio’s worst-performing stock in the quarter was Albany Molecular Research Inc., a leading drug discovery, development, and manufacturing services provider for the pharmaceutical and biotechnology industries. The stock underperformed during the first quarter after the company reported weaker-than-expected fourth quarter results and guidance for 2017 earnings estimates. Although disappointing, these issues seem to be transient, largely driven by lower non-core revenues and near-term capital spending requirements, rather than weakness in the company’s base business. Longer term, we see the company as a beneficiary of the trend towards manufacturing service outsourcing. PDC Energy Inc., an exploration and production company, underperformed in the quarter due to concerns over commodity price weakness, which was driven by worries about excess oil supply in the market. From a company-specific standpoint, execution has remained very strong and better drilling results have improved returns. Envestnet Inc., a software provider for the asset management industry, was another detractor in the quarter. Concerns surrounding the Department of Labor fiduciary standards rule being delayed, which could likely cause customers to delay software upgrades, led to the weakness. In addition, the company had some tax-related questions that caused the delay of its regulatory filings, an issue that we believe to be temporary.

Outlook and Positioning

As of the end of the first quarter of 2017, the portfoliowas overweighted in the financials and consumer discretionary sectors and underweighted primarily in industrials and real estate sectors. While overall economic growth rates have been lower than in prior expansion periods, the economic recovery is now the third longest on record, at 93 months. The likelihood that the United States is in the later stages of the business cycle, in our opinion, remains significant. While pro-growth policies may extend the length of the cycle, we do not foresee a rapid acceleration in the economy. Thus we believe that growth stocks remain relatively attractive as investors typically pay more for growth stocks when growth is scarce or questionable. More importantly, we continue to focus on identifying companies with strong fundamentals and solid growth prospects. We believe this is a winning strategy over time, regardless of the economic backdrop.    



Stock Performance (3 months ended 3/31/2017)
Top 5 Stocks Average Weight Contribution to Return
Glaukos Corp 2.64% 1.11%
Advisory Board Company 2.21 0.76
Nevro Corp. 2.29 0.70
Zendesk, Inc. 1.89 0.57
RingCentral, Inc. Class A 1.59 0.53
Bottom 5 Stocks Average Weight Contribution to Return
Albany Molecular Research, Inc. 0.94% -0.27%
PDC Energy Inc 1.34 -0.19
National CineMedia, Inc. 1.07 -0.16
Envestnet, Inc. 1.86 -0.14
Generac Holdings Inc. 1.31 -0.13
Top 5 Stocks
Glaukos Corp
Average Weight 2.64%
Contribution to Return 1.11%
Advisory Board Company
Average Weight 2.21
Contribution to Return 0.76
Nevro Corp.
Average Weight 2.29
Contribution to Return 0.70
Zendesk, Inc.
Average Weight 1.89
Contribution to Return 0.57
RingCentral, Inc. Class A
Average Weight 1.59
Contribution to Return 0.53
Bottom 5 Stocks
Albany Molecular Research, Inc.
Average Weight 0.94%
Contribution to Return -0.27%
PDC Energy Inc
Average Weight 1.34
Contribution to Return -0.19
National CineMedia, Inc.
Average Weight 1.07
Contribution to Return -0.16
Envestnet, Inc.
Average Weight 1.86
Contribution to Return -0.14
Generac Holdings Inc.
Average Weight 1.31
Contribution to Return -0.13

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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