Quantitative Equity

Investment Strategy

Denver Investments’ Micro-Cap strategy is based on the belief that inefficiencies in the micro-cap universe are best exploited through a disciplined quantitative approach. The team utilizes sector-specific modeling based on proprietary factors that combine quantitative and fundamental insights. The team constructs the portfolio through an optimization process designed to maximize returns and minimize risk relative to the benchmark.

Portfolio Management

We employ a quantitative approach to investing, one that utilizes fundamental factors, which we believe are predictive of long-term stock price performance. – Paul A. Kuppinger, CFA

Paul A. Kuppinger, CFA

Paul A. Kuppinger, CFA

Vice President, Portfolio Manager, Quantitative Analyst

Portfolio Construction Guidelines:

  • Approximately 150-200 stocks
  • Maximum initial position size of 85 bps
  • Sector sensitive: +/- 3% of the absolute sector weight of the benchmark
  • Fully invested: typically less than 5% cash

Russell Microcap® Index

Investment Minimum:


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

Paul A. Kuppinger, CFA
Paul A. Kuppinger, CFA

Vice President, Portfolio Manager, Quantitative Analyst

2006 to Present: Denver Investments
2003 to 2006: Rocky Mountain Wealth Advisors, Principal
2002 to 2003: Curian Capital, Vice President of Research
1998 to 2002: Prima Capital, Director of Research
1997 to 1998: KPMG, Research Analyst
1993 to 1995: Westcap Investors, Trader
1990 to 1993: Wilshire Associates, Supervisor of Performance Measurement

BA – The Colorado College; MBA – University of Colorado
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

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
Micro-Cap (gross) -1.48 1.32 6.83 6.83 9.04 14.80 -
Micro-Cap (net) -1.59 1.01 5.51 5.51 7.69 13.38
Russell Microcap Index -0.47 1.8 13.17 13.17 8.91 14.29 -
Monthly Returns(%) as of 12/31/2017 Gross Net
1 Month -1.48 -1.59
3 Months 1.32 1.01
YTD 6.83 5.51
Annualized Returns(%) as of 12/31/2017 Gross Net
1 Year 6.83 5.51
3 Years 9.04 7.69
5 Years 14.80 13.38
10 Years -
Russell Microcap Index
Monthly Returns(%) as of12/31/2017 Gross Net
1 Month -0.47 -
3 Months 1.8 -
YTD 13.17 -
Annualized Returns(%) as of 12/31/2017 Gross Net
1 Year 13.17 -
3 Years 8.91 -
5 Years 14.29 -
10 Years -

Calendar Year Performance (%)

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
Micro-Cap (Gross) 6.83 26.05 -3.72 3.86 48.06 17.11 -2.26 35.23 17.07 -19.49
Micro-Cap (Net) 5.51 24.51 -4.92 2.57 46.46 15.94 -3.25 33.50 15.55 -20.04
Russell Microcap Index 13.17 20.37 -5.16 3.65 45.62 19.75 -9.27 28.89 27.48 -28.71*
Year Gross Net
2017 6.83 5.51
2016 26.05 24.51
2015 -3.72 -4.92
2014 3.86 2.57
2013 48.06 46.46
2012 17.11 15.94
2011 -2.26 -3.25
2010 35.23 33.50
2009 17.07 15.55
2008 -19.49 -20.04
Russell Microcap Index
Year Gross Net
2017 13.17 -
2016 20.37 -
2015 -5.16 -
2014 3.65 -
2013 45.62 -
2012 19.75 -
2011 -9.27 -
2010 28.89 -
2009 27.48 -
2008 -28.71* -

*2008 calendar year returns for the product and benchmark are for the period 7/1/2008 through 12/31/2008.

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 Microcap® Index measures the performance of the microcap segment of the U.S. equity market. It makes up less than 3% of the U.S. equity market. It includes 1,000 of the smallest securities in the Russell 2000 Index based on a combination of their market cap and current index membership and it includes the next 1,000 securities. 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 Environment

Micro-cap stocks posted their third straight quarter of positive results, with the Russell Microcap® Index up 1.80% for the three months ended December 31, 2017. For the first time in 2017, stocks that we view as expensive underperformed companies with high cash flow to price and other positive valuation metrics. Stocks with solid return on equity slightly outperformed, as did those with higher quality (as measured by the Piotroski score). Stocks with higher volatility and higher historical trading volume outperformed those that were less volatile and less liquid.

Contributors to Return

The portfolio’s best-performing sectors, relative to the benchmark, were utilities and industrials. Among the portfolio’s best-performing holdings this quarter was Spectrum Pharmaceuticals Inc., a commercial-stage biotechnology company with fully integrated commercial and drug development operations that specializes in hematology and oncology. The company’s Poziotinib drug has continued to perform well in lung cancer studies. Sucampo Pharmaceuticals Inc. was another significant contributor to the portfolio’s performance in the quarter. It was announced in December that this biotechnology firm has entered into an agreement to be acquired by Mallinckrodt plc. Another strong performer was Florida-based Exactech Inc. This leading manufacturer and distributor of orthopedic implant devices entered into an agreement to be acquired by TPG Capital during the quarter.

Detractors from Return

The portfolio’s weakest sectors relative to the benchmark were financials and health care. Among the portfolio’s detractors in the quarter was Cytokinetics Inc., a biopharmaceutical company which develops muscle activators as potential treatments for debilitating diseases. The company’s drug Tirasemtiv, primarily used for the treatment of ALS, disappointed in clinical studies. Another detractor from the portfolio’s performance in the quarter was Roadrunner Transportation Systems Inc., an asset-light transportation and supply chains solutions provider. The firm has been troubled by accounting issues. Genetic testing company Natera Inc. also hampered the portfolio’s performance in the quarter. Its stock underperformed after management lowered guidance for earnings estimates following policy changes by two large insurance firms, which could create headwinds for the company.

Outlook and Positioning

The passage of tax reform has added to the continuing improvement in global economic growth and rising corporate earnings. The combination of still-low interest rates, a relatively stable monetary policy, and domestic regulatory relief suggests a promising outlook for 2018. With more job openings in the retail industry than at any time since the turn of the century, companies like Wal-Mart Stores Inc. have increased starting wages by over 20% and have handed out bonuses to existing employees. Long-term nominal wage growth will likely go a long way towards establishing broad-based economic growth. While valuations are historically high for many large-cap stocks, we believe micro-cap stocks, particularly those inexpensive based on the cash flow to enterprise value, remain relatively attractive. 

Stock Performance (3 months ended 12/31/2017)
Top 5 Stocks Average Weight Contribution to Return
Spectrum Pharmaceuticals, Inc. 1.46% 0.49%
Exactech, Inc. 1.05 0.40
Sucampo Pharmaceuticals, Inc. Class A 0.77 0.39
Bristow Group Inc. 0.91 0.33
H&E Equipment Services, Inc. 0.70 0.25
Bottom 5 Stocks Average Weight Contribution to Return
Cytokinetics, Incorporated 0.61% -0.35
Roadrunner Transportation Systems, Inc. 0.95 -0.20
Natera, Inc. 0.54 -0.19
OraSure Technologies, Inc. 0.82 -0.15
Seres Therapeutics Inc 0.24 -0.14
Top 5 Stocks
Spectrum Pharmaceuticals, Inc.
Average Weight 1.46%
Contribution to Return 0.49%
Exactech, Inc.
Average Weight 1.05
Contribution to Return 0.40
Sucampo Pharmaceuticals, Inc. Class A
Average Weight 0.77
Contribution to Return 0.39
Bristow Group Inc.
Average Weight 0.91
Contribution to Return 0.33
H&E Equipment Services, Inc.
Average Weight 0.70
Contribution to Return 0.25
Bottom 5 Stocks
Cytokinetics, Incorporated
Average Weight 0.61%
Contribution to Return -0.35
Roadrunner Transportation Systems, Inc.
Average Weight 0.95
Contribution to Return -0.20
Natera, Inc.
Average Weight 0.54
Contribution to Return -0.19
OraSure Technologies, Inc.
Average Weight 0.82
Contribution to Return -0.15
Seres Therapeutics Inc
Average Weight 0.24
Contribution to Return -0.14

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.

Micro-Caps: Expanding the Investment Opportunity Set

The investment team shares its thoughts on why micro-cap stocks present a unique opportunity to long-term investors.

Request More Information