Concentrated International Small-Cap

International Equity

Investment Strategy

Denver Investments’ Concentrated International Small-Cap strategy is based on the belief that investing in businesses trading at a significant discount to intrinsic value leads to consistent outperformance over time. Utilizing a bottom-up approach grounded in independent fundamental research, the team constructs a concentrated portfolio designed to generate alpha primarily through stock selection.

Portfolio Management

We seek to invest in international small-cap companies we believe are high quality and growing rapidly that are also trading at attractive valuations. – John C. Fenley, CFA

John C. Fenley, CFA

John C. Fenley, CFA

Partner, Director of International Portfolio Management, Portfolio Manager

Jeremy A. Duhon, CFA

Jeremy A. Duhon, CFA

Partner, Director of International Research, Portfolio Manager

Portfolio Construction Guidelines:

  • Approximately 20-35 stocks
  • Minimum/maximum position size: 2%/ 8%
  • Maximum in non-benchmark securities: 100%
  • Maximum in emerging markets: 15%
  • Fully invested: typically less than 5% cash
Benchmark:

MSCI ACWI ex-US Small Cap-ND 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

John C. Fenley, CFA
John C. Fenley, CFA

Partner, Director of International Portfolio Management, Portfolio Manager

2000 to Present: Denver Investments
1997 to 2000: Hansberger Global Investors, Inc., Vice President of Research
1995 to 1997: Sun Trust Bank, Vice President and Portfolio Manager
1990 to 1995: Fifth Third Bank, Portfolio Manager and Equity Analyst
Education:

BA – Vanderbilt University; MBA – Duke University
Member of CFA Institute and CFA Society Colorado

Jeremy A. Duhon, CFA
Jeremy A. Duhon, CFA

Partner, Director of International Research, Portfolio Manager

2004 to Present: Denver Investments
2002 to 2004: El Pomar Foundation, Senior Investment Fellow
Education:

BA – Pomona College
Member of CFA Institute and CFA Society Colorado

Masha Carey, CFA
Masha Carey, CFA

Analyst

2017 to Present: Denver Investments
2011 to 2016: Eaton Vance, Senior Research Associate
Education:

BA – New York University
Member of CFA Institute and CFA Society Boston

Ryan J. Deliefde, CFA, CPA
Ryan J. Deliefde, CFA, CPA

Analyst

2014 to Present: Denver Investments
2012 to 2014: PricewaterhouseCoopers, Senior Associate
Education:

BS – University of Denver
Member of CFA Institute and CFA Society Colorado

Sean Dixon
Sean Dixon

Analyst

2016 to Present: Denver Investments
2008 to 2016: Madison Street Partners, Analyst
Education:

BS – University of Denver

Rico Fung
Rico Fung

Analyst

2016 to Present: Denver Investments
2015: Pendant, Co-founder
Education:

BA – University of Chicago

Andrea Gerdes
Andrea Gerdes

Analyst

2017 to Present: Denver Investments
Education:

BS – University of Denver, BSBA – University of Denver

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: 2/28/2017
Annualized Returns (%)
Periods Ended: 12/31/2016
1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
Concentrated International Small-Cap (gross) 1.20 5.25 4.58 2.05 -2.89 7.46 5.57
Concentrated International Small-Cap (net) 1.10 4.92 4.37 0.78 -4.10 6.13 4.37
MSCI ACWI ex-USA Small Cap Index 2.63 8.83 6.57 3.91 0.76 7.74 2.90
MSCI EAFE Small Cap Index 2.24 8.89 5.85 2.18 2.10 10.56 2.95
Concentrated International Small-Cap
Monthly Returns(%) as of 2/28/2017 Gross Net
1 Month 1.20 1.10
3 Months 5.25 4.92
YTD 4.58 4.37
Annualized Returns(%) as of 2/28/2017 Gross Net
1 Year 15.08 13.67
3 Years -1.60 -2.83
5 Years 5.45 4.14
10 Years 5.74 4.81
MSCI ACWI ex-USA Small Cap Index
Monthly Returns(%) as of2/28/2017 Gross Net
1 Month 2.63 -
3 Months 8.83 -
YTD 6.57 -
Annualized Returns(%) as of 2/28/2017 Gross Net
1 Year 19.52 -
3 Years 1.80 -
5 Years 5.98 -
10 Years 3.22
MSCI EAFE Small Cap Index
Monthly Returns(%) as of2/28/2017 Gross Net
1 Month 2.24 -
3 Months 8.89 -
YTD 5.85 -
Annualized Returns(%) as of 2/28/2017 Gross Net
1 Year 17.53 -
3 Years 2.74 -
5 Years 8.78 -
10 Years 3.15

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Concentrated International Small-Cap (Gross) 2.05 2.01 -12.02 24.77 25.38 -3.17 39.47 69.64 -48.22 1.14
Concentrated International Small-Cap (Net) 0.78 0.75 -13.12 23.24 23.86 -4.31 38.11 67.99 -48.76 0.12
MSCI ACWI ex-USA Small Cap Index 3.91 2.60 -4.03 19.73 18.52 -18.50 25.21 62.91 -50.23 10.74
MSCI EAFE Small Cap Index 2.18 9.59 -4.95 29.30 20.00 -15.94 22.04 46.78 -47.01 1.45
Concentrated International Small-Cap
Year Gross Net
2016 2.05 0.78
2015 2.01 0.75
2014 -12.02 -13.12
2013 24.77 23.24
2012 25.38 23.86
2011 -3.17 -4.31
2010 39.47 38.11
2009 69.64 67.99
2008 -48.22 -48.76
2007 1.14 0.12
MSCI ACWI ex-USA Small Cap Index
Year Gross Net
2016 3.91 -
2015 2.60 -
2014 -4.03 -
2013 19.73 -
2012 18.52 -
2011 -18.50 -
2010 25.21 -
2009 62.91 -
2008 -50.23 -
2007 10.74 -
MSCI EAFE Small Cap Index
Year Gross Net
2016 2.18 -
2015 9.59 -
2014 -4.95 -
2013 29.30 -
2012 20.00 -
2011 -15.94 -
2010 22.04 -
2009 46.78 -
2008 -47.01 -
2007 1.45 -

**Please note that effective January 1, 2015, the product changed its benchmark from the MSCI EAFE Small Cap Index to the MSCI ACWI ex-USA Small Cap Index. Download the fact sheet to see the most recent performance and GIPS disclosure.

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 MSCI EAFE Small Cap Index is an unmanaged market-capitalization weighted index that represents the performance of smaller capitalization companies in developed stock markets outside of North America. The index targets all companies with a market capitalization below that of the companies in the MSCI EAFE Index and up to 99% coverage of the free-float adjusted market capitalization in each market. 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 Investment Advisors LLC 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 12/31/2016

 

Market Overview

The fourth quarter was dominated by news of the incoming administration in the United States. Even international stocks were affected by the strengthening of the U.S. dollar that occurred after Donald Trump’s election. Regardless of what impact, if any, currency swings have on individual foreign companies, when an investor converts ownership of those stocks back into U.S. dollars, that strengthening actually decreases the value of the holdings. The U.S. presidential election also affected sentiment in certain sectors. For instance, cyclical companies that may benefit from the infrastructure boom promised by President-elect Trump outperformed the general market. Other commodity-related sectors, such as energy, also rallied as oil prices increased.

Portfolio Commentary

The Denver Investments’ Concentrated International Small-Cap portfolio underperformed its benchmark, the MSCI ACWI ex USA Small Cap Index, returned -3.52% for the quarter. The strengthening U.S. dollar was a major factor in the negative returns of both the portfolio and the benchmark. Additionally, because the portfolio generally focuses on companies with lower economic sensitivity, it did not participate in the rally in more cyclical companies that was prompted by the new administration’s pledge to rebuild infrastructure.

Contributors to Return

Among the portfolio’s top performers in the quarter was Italy-based asset manager, Azimut Holding SpA. With solid performance, and acquisitions around the world, Azimut has been able to add new assets with consistency. In 2016, it added more than $5.7 billion in net assets to reach $34 billion under management. G8 Education Ltd., an Australian child-care provider, also contributed to the portfolio’s performance during the quarter. Australia’s child care market is highly fragmented and G8 has been able to gain significant market share. The company has benefited from demographics as Australia’s child population continues to grow. Another positive for G8 is that low unemployment in Australia often leads both parents to work, and this option is made somewhat more appealing with the government subsidizing child care.

Detractors from Return

Caesarstone Ltd., the Israel-based manufacturer of engineered quartz used mainly for kitchen countertops, was a detractor to the portfolio’s performance. During the quarter, Caesarstone reported disappointing earnings as sales in the United States declined. Some of the recent weakness in sales was caused by a general slowdown in the repair and remodel market towards the end of the year. Despite this disappointment, we are encouraged by Caesarstone’s long-term prospects. It has continued to benefit from quartz gaining popularity over granite and its brand maintains a high satisfaction rating from customers. Japan-based Arcland Service Holdings Co. Ltd. was a detractor from performance for the quarter. This operator of tonkatsu (deep-fried pork cutlet) restaurants continued to grow at a double-digit rate. However, sentiment in Japan became more subdued, particularly in the highly competitive restaurant industry, which placed Arcland shares under pressure. We remain confident that Arcland’s low-price-point strategy can continue to provide attractive operating results.

Outlook and Positioning

We believe the companies currently held in the portfolio have the potential to grow earnings at a faster pace than market peers. Additionally, many of the portfolio’s holdings are trading at significant discounts compared to the companies in the benchmark. Together, these factors give us optimism that the portfolio is in a good position going into the New Year.



Stock Performance (3 months ended 12/31/2016)
Top 5 Stocks Average Weight Contribution to Return
Utilitywise PLC 1.40% 0.58%
Azimut Holding SpA 2.85 0.45
Sapiens International Corp NV 3.29 0.42
Diploma PLC 3.24 0.39
G8 Education Ltd 2.54 0.32
Bottom 5 Stocks Average Weight Contribution to Return
Caesarstone Ltd 2.73% -0.76%
Arcland Service Co Ltd 3.39 -0.70
Tsuruha Holdings Inc 3.49 -0.64
OFX Group Ltd 2.41 -0.51
SMS Co Ltd 2.92 -0.45
Top 5 Stocks
Utilitywise PLC
Average Weight 1.40%
Contribution to Return 0.58%
Azimut Holding SpA
Average Weight 2.85
Contribution to Return 0.45
Sapiens International Corp NV
Average Weight 3.29
Contribution to Return 0.42
Diploma PLC
Average Weight 3.24
Contribution to Return 0.39
G8 Education Ltd
Average Weight 2.54
Contribution to Return 0.32
Bottom 5 Stocks
Caesarstone Ltd
Average Weight 2.73%
Contribution to Return -0.76%
Arcland Service Co Ltd
Average Weight 3.39
Contribution to Return -0.70
Tsuruha Holdings Inc
Average Weight 3.49
Contribution to Return -0.64
OFX Group Ltd
Average Weight 2.41
Contribution to Return -0.51
SMS Co Ltd
Average Weight 2.92
Contribution to Return -0.45

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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