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:

$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

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

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
Mid-Cap Value (gross) -2.55 -3.63 -0.82 21.18 12.49 14.95 7.49
Mid-Cap Value (net) -2.62 -3.82 -1.13 20.29 11.65 14.11 6.70
Russell Midcap Value Index -0.31 -0.85 3.63 19.82 8.94 14.07 7.47
Mid-Cap Value
Monthly Returns(%) as of 5/31/2017 Gross Net
1 Month -2.55 -2.62
3 Months -3.63 -3.82
YTD -0.82 -1.13
Annualized Returns(%) as of 5/31/2017 Gross Net
1 Year 14.07 13.23
3 Years 10.16 9.34
5 Years 15.76 14.91
10 Years 6.30 6.36
Russell Midcap Value Index
Monthly Returns(%) as of5/31/2017 Gross Net
1 Month -0.31 -
3 Months -0.85 -
YTD 3.63 -
Annualized Returns(%) as of 5/31/2017 Gross Net
1 Year 15.27 -
3 Years 8.15 -
5 Years 15.63 -
10 Years 6.77

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Mid-Cap Value (Gross) 24.4 -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 1.6
Russell Midcap Value Index 20 -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 24.4 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 1.6
Russell Midcap Value Index
Year Gross Net
2016 20 -
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 3/31/2017

 

Market Overview

Mid-cap value stocks continued their climb higher in the first quarter, even as the “risk-on” trade lost steam as investors became more defensive, particularly in March. We witnessed a clear change in sector leadership in the quarter, as more cyclical sectors, such as energy and interest rate sensitive, underperformed, while more defensive sectors, such as medical/healthcare and utilities, were among the top-performing sectors. The technology sector took the lead in the mid-cap value space, driven by semi-conductor stocks, which continued to climb higher on increased capital expenditures in response to strong demand for flash memory. Within the interest rate sensitive sector, banks pulled back, reversing some of their fourth quarter gains. This occurred as the Federal Reserve raised rates during the quarter and suggested more near-term rate hikes might be appropriate. The markets’ excitement around potential policy changes, such as infrastructure spending, de-regulation, and tax reform, appeared to fade. At the same time, concerns around policy uncertainty and signs of a peaking domestic economy weighed on various industries and sectors.

Portfolio Commentary

For the first quarter of 2017, the Denver Investments’ Mid-Cap Value portfolio underperformed the 3.76% return of its benchmark, the Russell Midcap® Value Index.

Contributors to Return

The portfolio’s top-contributing sectors relative to its benchmark in the quarter were the energy, medical/healthcare, and REITs. Within the medical/healthcare sector, the portfolio’s outperformance was driven by global biopharmaceutical holding Grifols S.A. The company announced financial results that met expectations and the market also warmed to the idea that the plasma market may be at the beginning stages of improvement given looming supply constrictions. We believe such a scenario, coupled with improving capacity utilization and reduced duplicative costs, should help offset an increase in near-term collection investments, and drive greater cash flow and return generation. Within the REIT sector, CyrusOne Inc., a data center facility provider for mission-critical data, was another strong performer. CyrusOne recorded solid fourth quarter results that were slightly better than expectations. While signed leases were modest, given that the company has virtually no space to left to sell, sales were up meaningfully in both cloud and enterprise spaces. We expect CyrusOne to produce solid cash flow growth as a record number of 2016 leases commence and it begins adding build-to-suit projects to put capital to work at attractive returns. Goodyear Tire & Rubber Co., a developer, manufacturer, and distributor of tires and related products, was another top-contributing holding for the quarter. A continuation of favorable U.S. tire industry trends and a volatile commodity environment that was well managed by the company led to financial results that met expectations. Although our thesis remains intact and management is executing well, we trimmed the portfolio’s position in the quarter, given the share price strength.

Detractors from Return

The sectors that detracted most from the portfolio’s performance relative to its benchmark were interest rate sensitive, technology, and capital goods. AmTrust Financial Services Inc., a provider of insurance services primarily to small businesses, was the portfolio’s largest detractor within the interest rate sensitive sector. The company reported 2016 results that were in line with our expectations, but disappointed the market by announcing the delay of its annual report filing. The delay was due to questions regarding the timing of recognition of certain revenues and expenses. We expect this to have a relatively limited impact on reported earnings. CSRA Inc., a provider of information technology services to U.S. government customers, was the portfolio’s most significant detractor within the technology sector. Following strong share price performance driven by the euphoric post-election defense spending outlook, CSRA’s stock retreated in the first quarter. Investors became concerned about the company competing to keep two large project contracts and the potential for start-up projects to reduce profit margin. Over-the-counter pharmaceutical and specialty drug manufacturer Perrigo Co. weighed on the portfolio’s performance in the medical/healthcare sector. Weaker–than-expected financial results, partially due to restructuring efforts and foreign currency headwinds, and the unexpected departure of the company’s CFO pressured shares during the quarter. We are optimistic about the company’s turnaround efforts with the election of activists to its board, improvements to its balance sheet through royalty monetization, and the initiation of a global cost reduction plan.

Outlook and Positioning

We believe uncertainty regarding the outlook for economic growth will continue and that concerns around successful policy implementation will remain heightened. The uncertainty has resulted in a wavering of the post-election market euphoria as questions regarding economic growth and policy changes remain unanswered. This, coupled with historically high valuations, in our opinion, is a recipe for continued volatility. In this type of environment, we believe any company-specific disappointments are likely to be severely and often overly punished. This would create near-term pain, but also may offer opportunities to invest in companies at prices below what we believe they are worth.



Stock Performance (3 months ended 3/31/2017)
Top 5 Stocks Average Weight Contribution to Return
CyrusOne, Inc. 2.53% 0.38%
Lam Research Corporation 1.66 0.33
Goodyear Tire & Rubber Company 1.65 0.28
Edison International 2.32 0.25
Grifols, S.A. Sponsored ADR Class B 1.51 0.25
Bottom 5 Stocks Average Weight Contribution to Return
AmTrust Financial Services Inc. 2.16% -0.78%
Perrigo Co. Plc 1.08 -0.24
Noble Energy, Inc. 2.22 -0.21
Helmerich & Payne, Inc. 1.40 -0.20
CSRA, Inc. 2.03 -0.16
Top 5 Stocks
CyrusOne, Inc.
Average Weight 2.53%
Contribution to Return 0.38%
Lam Research Corporation
Average Weight 1.66
Contribution to Return 0.33
Goodyear Tire & Rubber Company
Average Weight 1.65
Contribution to Return 0.28
Edison International
Average Weight 2.32
Contribution to Return 0.25
Grifols, S.A. Sponsored ADR Class B
Average Weight 1.51
Contribution to Return 0.25
Bottom 5 Stocks
AmTrust Financial Services Inc.
Average Weight 2.16%
Contribution to Return -0.78%
Perrigo Co. Plc
Average Weight 1.08
Contribution to Return -0.24
Noble Energy, Inc.
Average Weight 2.22
Contribution to Return -0.21
Helmerich & Payne, Inc.
Average Weight 1.40
Contribution to Return -0.20
CSRA, Inc.
Average Weight 2.03
Contribution to Return -0.16

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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