Mid-Cap Value

Value Equity

Investment Strategy

Denver Investments’ Mid-Cap Value strategy is based on the belief that the market rewards companies over time for their free cash flow rather than their reported earnings. The strategy utilizes a bottom-up approach, which is grounded in independent fundamental research. Analysts seek to invest in dividend-paying companies where the future free cash flow and return on invested capital are undervalued by the market. The team constructs a diversified portfolio designed to generate alpha primarily through stock selection.

Portfolio Management

We look for dividend-paying, cash-flow generating businesses at attractive prices. We believe our process creates a powerful approach that may preserve capital in down markets while also participating in up markets. – Derek R. Anguilm, CFA

Derek R. Anguilm, CFA

Derek R. Anguilm, CFA

Partner, Co-Director of Value Research, Portfolio Manager

Troy Dayton, CFA

Troy Dayton, CFA

Partner, Co-Director of Value Research, Portfolio Manager

Mark M. Adelmann, CFA, CPA

Mark M. Adelmann, CFA, CPA

Partner, Portfolio Manager, Analyst

Lisa Z. Ramirez, CFA

Lisa Z. Ramirez, CFA

Partner, Portfolio Manager, Analyst

Alex A. Ruehle, CFA

Alex A. Ruehle, CFA

Partner, Portfolio Manager, Analyst

Portfolio Construction Guidelines:

  • Approximately 50-70 stocks
  • Initial position size of 1% to 3%; maximum of 5%
  • Sector sensitive: +/- 5% of the absolute sector weight of the benchmark
  • Fully invested: typically less than 5% cash
Benchmark:

Russell Midcap® Value 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

Derek R. Anguilm, CFA
Derek R. Anguilm, CFA

Partner, Co-Director of Value Research, Portfolio Manager

2000 to Present: Denver Investments
1999: Everen Securities, Research Assistant
Education:

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

Troy Dayton, CFA
Troy Dayton, CFA

Partner, Co-Director of Value Research, Portfolio Manager

2002 to Present: Denver Investments
2001 to 2002: Jurika and Voyles, Equity Research Analyst
1998 to 2001: Dresdner RCM Global Investors, Equity Research Associate
1996 to 1998: Jurika and Voyles, Equity Research Associate
1996: Citibank, Trading Support Officer
Education:

BSBA – Colorado State University
Member of CFA Institute and CFA Society Colorado

Mark M. Adelmann, CFA, CPA
Mark M. Adelmann, CFA, CPA

Partner, Portfolio Manager, Analyst

1995 to Present: Denver Investments
1979 to 1995: Deloitte & Touche, Senior Manager
Education:

BS – Oral Roberts University
Member of CFA Institute and CFA Society Colorado
Member of the American Institute of CPAs and the Colorado Society of CPAs

Lisa Z. Ramirez, CFA
Lisa Z. Ramirez, CFA

Partner, Portfolio Manager, Analyst

1989 to Present: Denver Investments
Education:

BS – University of Colorado; MBA – Regis University
Member of CFA Institute and CFA Society Colorado

Alex A. Ruehle, CFA
Alex A. Ruehle, CFA

Partner, Portfolio Manager, Analyst

2008 to Present: Denver Investments
2006 to 2007: First Western Financial Services, Inc., Intern
Education:

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

Jennifer B. Oldland
Jennifer B. Oldland

Vice President, Analyst

2006 to Present: Denver Investments
Education:

BS – Colorado State University

Guangyan (Yan) Qin, CFA
Guangyan (Yan) Qin, CFA

Vice President, Analyst

2008 to Present: Denver Investments
2007: Investment Protection Services, Wealth Management Intern
2007: First Data Corporation, Treasury Analyst Intern
2005: China Construction Bank, Intern
Education:

BS – University of International Business and Economics, Beijing, China
MS – University of Denver
Member of CFA Institute and CFA Society Colorado

Robbie A. Steiner, CFA
Robbie A. Steiner, CFA

Vice President, Analyst

2014 to Present: Denver Investments
2012 to 2013: BMO Capital Markets, Investment Banking Associate
2008 to 2010: Transamerica Investments, Mutual Fund Wholesaler
Education:

BBA – University of Georgia, MBA – Emory University
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: 9/30/2017
Annualized Returns (%)
Periods Ended: 9/30/2017
1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
Mid-Cap Value (gross) 3.49 1.19 2.74 11.21 11.25 14.72 7.28
Mid-Cap Value (net) 3.43 1.00 2.16 10.38 10.43 13.88 6.52
Russell Midcap Value Index 2.73 2.14 7.43 13.37 9.19 14.33 7.85
Mid-Cap Value
Monthly Returns(%) as of 9/30/2017 Gross Net
1 Month 3.49 3.43
3 Months 1.19 1.00
YTD 2.74 2.16
Annualized Returns(%) as of 9/30/2017 Gross Net
1 Year 11.21 10.38
3 Years 11.25 10.43
5 Years 14.72 13.88
10 Years 7.28 6.52
Russell Midcap Value Index
Monthly Returns(%) as of9/30/2017 Gross Net
1 Month 2.73 -
3 Months 2.14 -
YTD 7.43 -
Annualized Returns(%) as of 9/30/2017 Gross Net
1 Year 13.37 -
3 Years 9.19 -
5 Years 14.33 -
10 Years 7.85

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Mid-Cap Value (Gross) 24.40 -0.28 14.08 32.17 13.75 1.19 21.59 33.51 -41.63 2.82
Mid-Cap Value (Net) 23.48 -1.03 13.24 31.21 12.97 0.51 20.85 32.64 -42.02 1.60
Russell Midcap Value Index 20.00 -4.78 14.75 33.46 18.51 -1.38 24.75 34.21 -38.44 -1.42
Mid-Cap Value
Year Gross Net
2016 24.40 23.48
2015 -0.28 -1.03
2014 14.08 13.24
2013 32.17 31.21
2012 13.75 12.97
2011 1.19 0.51
2010 21.59 20.85
2009 33.51 32.64
2008 -41.63 -42.02
2007 2.82 1.60
Russell Midcap Value Index
Year Gross Net
2016 20.00 -
2015 -4.78 -
2014 14.75 -
2013 33.46 -
2012 18.51 -
2011 -1.38 -
2010 24.75 -
2009 34.21 -
2008 -38.44 -
2007 -1.42 -

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 Midcap® Value Index is an unmanaged index that measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. 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 6/30/2017

 

Market Overview

U.S. equity markets experienced a strong start to the year, driven by expectations of accelerated economic growth. In the second quarter, value stocks took a pause as reality did not meet those lofty near-term expectations. Excitement around the pro-business policies of the new administration took a back seat following the failure to pass the American Health Care Act of 2017 and the announced investigation into ties between President Trump’s campaign and Russian officials. These issues drove market fears that the new administration would be unable to implement policy changes. At the same time, the outlook for inflation dimmed and other economic indicators began to signal the potential for a slowdown, despite the Federal Reserve’s apparent optimism as it raised rates for the fourth time since December 2015. As a result of a more subdued outlook for U.S. economic growth, growth stocks (which have historically been less economically sensitive than value stocks) outperformed value stocks. Additionally, investors shifted assets to larger capitalization companies and to more defensive sectors, such as health care and utilities, and away from more cyclical sectors, such as energy and basic materials.

Contributors to Return

The sectors that contributed most to the portfolio’s return relative to its benchmark in the quarter were capital goods, medical/healthcare, and REITs. The portfolio’s individual top performers were led by Gramercy Property Trust, an office and industrial real estate company. Stable financial results along with constructive adjustments to Gramercy’s portfolio of properties drove its stock in the quarter. Another standout performer within the REIT sector was CyrusOne Inc., a provider of mission-critical data center facilities. As it logged one of its strongest leasing quarters on record, the company announced solid quarterly results, which included increased full-year guidance for earnings estimates. Technology sector holding Lam Research Corp. was another positive contributor. This semiconductor equipment company benefited from robust demand for its 3D NAND flash storage technology, which contributed to strong financial results. Interest rate sensitive sector holding Realogy Holdings Corp. was also among the portfolio’s strongest contributors in the quarter. Better-than-expected financial results from Realogy, a residential real estate and brokerage company, were driven by recent improvements in technology solutions and talent retention.

Detractors from Return

The portfolio’s weakest sectors relative to the benchmark for the quarter were consumer, interest rate sensitive, and energy. From an individual stock perspective, consumer sector holding Foot Locker Inc., a global retailer of athletic shoes and apparel, was the portfolio’s largest detractor. The retail environment continued to be challenging and Foot Locker was no exception. After missing quarterly financial estimates, news that Nike had decided to go direct through Amazon added further pressure to Foot Locker’s shares. Energy sector holdings SM Energy Co., Noble Energy Inc., and Targa Resources Corp. all contributed to performance headwinds during the quarter. Oil and gas producer SM Energy continued to be pressured from the uncertain oil price environment. We believe the market is overly penalizing the company and are optimistic given its recent Permian Basin asset purchase. Noble Energy, an oil and gas exploration and production company, also succumbed to market uncertainty about oil prices. This was coupled with a competitor incident in Colorado that renewed perception of regulatory risk. Targa Resources, a midstream gatherer and processor of natural gas liquids, grappled with lower commodity prices and lower global demand for its liquid propane gas exports. This resulted in lowered 2017 guidance for earnings estimates and pressured its share price. The portfolio’s largest detractor within the interest rate sensitive sector was AmTrust Financial Services Inc., a provider of insurance services primarily to small businesses. During the quarter, the Wall Street Journal published a story involving alleged accounting issues at AmTrust in 2013 and 2014. Although this information had formerly been revealed, investors reacted anew and the stock underperformed.

Outlook and Positioning

Looking ahead, we are excited about the opportunities that market and sector volatility may produce. As political, economic and market uncertainty continue, we will remain focused on finding dividend-paying stocks that we believe have sound fundamentals and are currently mispriced by the markets.



Stock Performance (3 months ended 6/30/2017)
Top 5 Stocks Average Weight Contribution to Return
Gramercy Property Trust 1.84% 0.28
Lam Research Corporation 1.21 0.26
CyrusOne, Inc. 2.04 0.22
Navient Corp 0.51 0.21
Realogy Holdings Corp. 2.05 0.20
Bottom 5 Stocks Average Weight Contribution to Return
Foot Locker, Inc. 1.20% -0.50
SM Energy Company 1.24 -0.47
Noble Energy, Inc. 1.89 -0.36
Targa Resources Corp. 1.10 -0.36
AmTrust Financial Services Inc. 1.93 -0.28
Top 5 Stocks
Gramercy Property Trust
Average Weight 1.84%
Contribution to Return 0.28
Lam Research Corporation
Average Weight 1.21
Contribution to Return 0.26
CyrusOne, Inc.
Average Weight 2.04
Contribution to Return 0.22
Navient Corp
Average Weight 0.51
Contribution to Return 0.21
Realogy Holdings Corp.
Average Weight 2.05
Contribution to Return 0.20
Bottom 5 Stocks
Foot Locker, Inc.
Average Weight 1.20%
Contribution to Return -0.50
SM Energy Company
Average Weight 1.24
Contribution to Return -0.47
Noble Energy, Inc.
Average Weight 1.89
Contribution to Return -0.36
Targa Resources Corp.
Average Weight 1.10
Contribution to Return -0.36
AmTrust Financial Services Inc.
Average Weight 1.93
Contribution to Return -0.28

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.

Potential for Higher Returns with Less Risk

Research shows that dividend-paying stocks have the potential to enhance a portfolio’s overall risk/return profile.

Read White Paper

Dividend Payers, An All Market Strategy

Portfolio Manager Lisa Ramirez discusses how dividend-paying stocks allow investors to participate in up markets while preserving capital in down markets.

Read Article

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