International Small-Cap

International Equity

Investment Strategy

Denver Investments’ 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 high conviction 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 35-60 stocks
  • Minimum/maximum position size: 1%/ 6%
  • 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:

$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

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

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, BSBA, MBA – 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

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
International Small-Cap (gross) 3.47 7.34 36.05 36.05 12.52 7.98 7.80
International Small-Cap (net) 3.37 7.02 34.40 34.40 11.14 6.64 6.51
MSCI ACWI ex USA Small Cap Index 3.07 6.56 31.65 31.65 11.96 10.03 4.69
MSCI EAFE Small Cap Index 2.67 6.05 33.01 33.01 14.2 12.85 5.77
International Small-Cap
Monthly Returns(%) as of 12/31/2017 Gross Net
1 Month 3.47 3.37
3 Months 7.34 7.02
YTD 36.05 34.40
Annualized Returns(%) as of 12/31/2017 Gross Net
1 Year 36.05 34.40
3 Years 12.52 11.14
5 Years 7.98 6.64
10 Years 7.80 6.51
MSCI ACWI ex USA Small Cap Index
Monthly Returns(%) as of12/31/2017 Gross Net
1 Month 3.07 -
3 Months 6.56 -
YTD 31.65 -
Annualized Returns(%) as of 12/31/2017 Gross Net
1 Year 31.65 -
3 Years 11.96 -
5 Years 10.03 -
10 Years 4.69
MSCI EAFE Small Cap Index
Monthly Returns(%) as of12/31/2017 Gross Net
1 Month 2.67 -
3 Months 6.05 -
YTD 33.01 -
Annualized Returns(%) as of 12/31/2017 Gross Net
1 Year 33.01 -
3 Years 14.2 -
5 Years 12.85 -
10 Years 5.77

Calendar Year Performance (%)

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
International Small-Cap (Gross) 36.05 1.70 2.96 -17.07 24.23 26.78 -4.26 37.30 66.53 -48.04
International Small-Cap (Net) 34.40 0.44 1.68 -18.12 22.70 25.17 -5.45 35.87 64.96 -48.59
MSCI ACWI ex USA Small Cap Index 31.65 3.91 2.60 -4.03 19.73 18.52 -18.50 25.21 62.91 -50.23
MSCI EAFE Small Cap Index 33.01 2.18 9.59 -4.95 29.30 20.00 -15.94 22.04 46.78 -47.01
International Small-Cap
Year Gross Net
2017 36.05 34.40
2016 1.70 0.44
2015 2.96 1.68
2014 -17.07 -18.12
2013 24.23 22.70
2012 26.78 25.17
2011 -4.26 -5.45
2010 37.30 35.87
2009 66.53 64.96
2008 -48.04 -48.59
MSCI ACWI ex USA Small Cap Index
Year Gross Net
2017 31.65 -
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 -
MSCI EAFE Small Cap Index
Year Gross Net
2017 33.01 -
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 -

*2006 calendar year returns for the product and benchmark are for the period 7/1/2006 through 12/31/2006.

**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 market capitalization below that of the companies in the MSCI EAFE Index and up to 99% coverage of the freefloat adjusted market capitalization in each market. MSCI is the source and owner of the MSCI 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 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 12/31/2017

 

Market Overview

Global earnings growth appears to have continued fueling equity market returns and the fourth quarter proved positive for most markets. Continued low interest rates, the effects of monetary easing over the past handful of years, and stubbornly low market volatility, have seemed to keep investors content, despite equity valuations continuing to increase. Although geopolitical concerns ebb and flow, markets do not appear to be overly concerned. Investors have generally been rewarded for taking on the risk of staying fully invested.

Contributors to Return

The portfolio’s largest contributor over the quarter was M&A Capital Partners Co. Ltd. Domiciled in Japan, M&A Capital Partners is the second largest mergers and acquisitions advisory firm for local small- and medium-sized enterprises (SME). In Japan, SMEs are facing succession issues due largely to the aging population. M&A Capital Partners is a leader in providing advice to SME business owners in selling their business and transitioning ownership. China Medical System Holdings Ltd. was another strong contributor to performance. The company distributes pharmaceutical products, primarily in China. It focuses on forming exclusive partnerships with Western drug manufacturers looking to enter the Chinese market. China Medical has a sales team of hundreds of professionals and targets thousands of hospitals in more than thirty provinces. Through robust growth in existing products and the in-licensing of new drugs, China Medical has achieved rapid growth and profitability.

Detractors from Return

Brazil-based Qualicorp SA was the portfolio’s most significant detractor over the quarter. Qualicorp engages in the provision of insurance and healthcare services through two segments, ‘Affinity’ and ‘Corporate’. Within the Affinity segment, the company negotiates contracts with health plan operators on behalf of professional associations to structure tailored solutions for members. The Corporate segment consists of activities related to brokerage insurance and brokerage plans. Qualicorp experienced challenging business conditions in the fourth quarter. Over the longer term, however, Qualicorp has proven to have a resilient business model, and we believe that it is positioned well for the future. Another detractor from the portfolio’s performance was Japan-based Firstlogic Inc. Firstlogic operates the largest web portal for investment real estate in Japan. The listing of real estate investments online remains an underpenetrated market in Japan, and Firstlogic has been growing its listing base. This, in turn, is driving website traffic and, we believe, increasing the value of the service for all users. We remain confident in Firstlogic as the online listing market is supported by increasing online advertising penetration, and demographic factors, such as declining marriage rates, are supporting demand.

Outlook and Positioning

We have been encouraged by the portfolio’s performance since making adjustments to our portfolio construction process towards the end of 2015. The major components of these adjustments apply to risk controls, such as the size of individual portfolio holdings. While each holding continues to be an important component of the portfolio, generally, we are no longer maintaining outsized positions that may, on an individual basis, dramatically affect overall performance. Another positive is that the portfolio outperformed despite continued headwinds from low market volatility in 2017. We are optimistic that even if volatility remains low, we will continue to find attractive investments in fundamentally sound, fast-growing companies that we believe are undervalued.



Stock Performance (3 months ended 12/31/2017)
Top 5 Stocks Average Weight Contribution to Return
M&A Capital Partners Co. Ltd. 4.03% 1.15
China Medical System Holdings Ltd. 3.48 1.05
Fu Shou Yuan International Group Ltd. 3.17 0.85
IBJ, Inc. 3.06 0.75
Softcat Plc 2.57 0.74
Bottom 5 Stocks Average Weight Contribution to Return
Qualicorp S.A. 2.24% -0.57
Azimut Holding Spa 2.91 -0.39
FIRSTLOGIC INC. 1.21 -0.39
CellaVision AB 1.73 -0.37
Sapiens International Corp. NV 2.80 -0.35
Top 5 Stocks
M&A Capital Partners Co. Ltd.
Average Weight 4.03%
Contribution to Return 1.15
China Medical System Holdings Ltd.
Average Weight 3.48
Contribution to Return 1.05
Fu Shou Yuan International Group Ltd.
Average Weight 3.17
Contribution to Return 0.85
IBJ, Inc.
Average Weight 3.06
Contribution to Return 0.75
Softcat Plc
Average Weight 2.57
Contribution to Return 0.74
Bottom 5 Stocks
Qualicorp S.A.
Average Weight 2.24%
Contribution to Return -0.57
Azimut Holding Spa
Average Weight 2.91
Contribution to Return -0.39
FIRSTLOGIC INC.
Average Weight 1.21
Contribution to Return -0.39
CellaVision AB
Average Weight 1.73
Contribution to Return -0.37
Sapiens International Corp. NV
Average Weight 2.80
Contribution to Return -0.35

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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