Small-Cap Value

Value Equity

Investment Strategy

Denver Investments’ Small-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 55-75 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 2000® 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
Small-Cap Value (gross) -3.52 -3.79 -4.54 24.45 9.25 12.85 7.21
Small-Cap Value (net) -3.60 -4.03 -4.93 23.23 8.17 11.73 6.15
Russell 2000 Value Index -3.11 -3.56 -2.86 29.37 7.62 12.54 6.09
Small-Cap Value
Monthly Returns(%) as of 5/31/2017 Gross Net
1 Month -3.52 -3.60
3 Months -3.79 -4.03
YTD -4.54 -4.93
Annualized Returns(%) as of 5/31/2017 Gross Net
1 Year 17.58 16.43
3 Years 8.10 7.04
5 Years 13.73 12.61
10 Years 6.38 5.88
Russell 2000 Value Index
Monthly Returns(%) as of5/31/2017 Gross Net
1 Month -3.11 -
3 Months -3.56 -
YTD -2.86 -
Annualized Returns(%) as of 5/31/2017 Gross Net
1 Year 21.00 -
3 Years 7.34 -
5 Years 13.67 -
10 Years 5.31

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Small-Cap Value (Gross) 32.27 -6.8 7.61 38.08 10.97 1.29 28.52 23.87 -32.9 -2.12
Small-Cap Value (Net) 30.99 -7.73 6.55 36.74 9.88 0.28 27.28 22.67 -33.59 -3.1
Russell 2000 Value Index 31.74 -7.47 4.22 34.52 18.05 -5.5 24.5 20.58 -28.92 -9.78
Small-Cap Value
Year Gross Net
2016 32.27 30.99
2015 -6.8 -7.73
2014 7.61 6.55
2013 38.08 36.74
2012 10.97 9.88
2011 1.29 0.28
2010 28.52 27.28
2009 23.87 22.67
2008 -32.9 -33.59
2007 -2.12 -3.1
Russell 2000 Value Index
Year Gross Net
2016 31.74 -
2015 -7.47 -
2014 4.22 -
2013 34.52 -
2012 18.05 -
2011 -5.5 -
2010 24.5 -
2009 20.58 -
2008 -28.92 -
2007 -9.78 -

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 2000® Value benchmark is an unmanaged index that measures the performance of companies within the Russell 2000® Index having lower price-to-book ratios and lower forecasted growth values than the threshold determined by the FTSE Russell. 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

Small-cap value stocks took a breather in the first quarter and 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, took the lead. 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’ Small-Cap Value portfolio underperformed the -0.13% return of its benchmark, the Russell 2000® Value Index.

Contributors to Return

The sectors that contributed to the portfolio’s return relative to its benchmark in the quarter were REITs and consumer. Within REITs, the portfolio’s standout performer was prison owner and operator GEO Group Inc. The stock continued a strong post-election run as the outlook for Federal use of private prisons improved. Performance was also driven by solid fourth quarter results as well as announcements of several pending opportunities. We look for further positive announcements over the next few months as government budgets are appropriated and new leases are able to be signed. Sinclair Broadcast Group Inc., a diversified media broadcasting operator, was the primary driver of the portfolio’s outperformance in the consumer sector. Despite a slight miss on revenues and earnings, the company’s quarterly financial results exhibited continued solid growth in its core advertising and digital businesses. These results, along with growing optimism around industry deregulation, helped to propel the share price higher during the quarter. Another strong contributor in the quarter was Realogy Holdings Corp., a provider of real estate brokerage services. The company reported fourth quarter results that were slightly above our expectations and demonstrated signs that internal initiatives are gaining traction.

Detractors from Return

The medical/healthcare, technology, and interest rate sensitive sectors were the portfolio’s largest detractors relative to the benchmark in the quarter. Generic pharmaceutical and ingredient producer, Aceto Corp. was the portfolio’s main detractor in the medical/healthcare sector. The market’s downward revision of expectations for generic drug pricing along with Aceto’s financial results missing expectations, led to the company’s underperformance. We believe little has changed within its product filing pipeline with the FDA and think the market is giving very little credit to the company’s stable base business. 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 it 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. Dairy processor and distributor Dean Foods Co. was another detractor from the portfolio’s performance this quarter. The company posted quarterly financial results that missed consensus and released weaker-than-expected guidance for earnings estimates. We believe that management is taking the right steps to prudently invest in the business, which, in our opinion, will drive a more diversified and less cyclical cash flow profile over time.

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
GEO Group Inc 1.96% 0.61%
CyrusOne, Inc. 2.78 0.41
Sinclair Broadcast Group, Inc. Class A 1.98 0.40
Realogy Holdings Corp. 1.57 0.24
MKS Instruments, Inc. 1.22 0.17
Bottom 5 Stocks Average Weight Contribution to Return
AmTrust Financial Services Inc. 2.27% -0.84%
SM Energy Company 1.59 -0.55
Aceto Corporation 1.24 -0.42
Dean Foods Company 3.24 -0.31
Caleres, Inc. 1.40 -0.29
Top 5 Stocks
GEO Group Inc
Average Weight 1.96%
Contribution to Return 0.61%
CyrusOne, Inc.
Average Weight 2.78
Contribution to Return 0.41
Sinclair Broadcast Group, Inc. Class A
Average Weight 1.98
Contribution to Return 0.40
Realogy Holdings Corp.
Average Weight 1.57
Contribution to Return 0.24
MKS Instruments, Inc.
Average Weight 1.22
Contribution to Return 0.17
Bottom 5 Stocks
AmTrust Financial Services Inc.
Average Weight 2.27%
Contribution to Return -0.84%
SM Energy Company
Average Weight 1.59
Contribution to Return -0.55
Aceto Corporation
Average Weight 1.24
Contribution to Return -0.42
Dean Foods Company
Average Weight 3.24
Contribution to Return -0.31
Caleres, Inc.
Average Weight 1.40
Contribution to Return -0.29

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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