Small-Cap Growth

Growth Equity

Investment Strategy

Denver Investments’ Small-Cap Growth strategy is based on the belief that equity prices reflect expectations for earnings and cash flow. The team believes that identifying companies with superior growth prospects and fundamental stability early leads to consistent outperformance over time. Through rigorous independent fundamental research, the lead portfolio managers construct a portfolio designed to generate alpha primarily through stock selection.

Portfolio Management

We seek to invest in growth companies with disruptive products or services, large market opportunities and strong competitive positions that are less sensitive to macroeconomic factors – Brian C. Fitzsimons, CFA

Brian C. Fitzsimons, CFA

Brian C. Fitzsimons, CFA

Partner, Director of Small-Cap Growth Research, Portfolio Manager

Mitch S. Begun, CFA

Mitch S. Begun, CFA

Partner, Portfolio Manager, Analyst

Adam C. Bliss

Partner, Portfolio Manager, Analyst

Portfolio Construction Guidelines:

  • Approximately 70-100 stocks
  • Typical position size of 1% to 3%; maximum of 5%
  • Sector sensitive: +/-10% of absolute sector weight of the benchmark
  • Fully invested: target less than 10% in cash
Benchmark:

Russell 2000® Growth 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

Brian C. Fitzsimons, CFA
Brian C. Fitzsimons, CFA

Partner, Director of Small-Cap Growth Research, Portfolio Manager

2005 to Present: Denver Investments
2004 to 2005: Newmont Capital Ltd., Finance Manager
2002 to 2004: A.G. Edwards & Sons, Inc., Equity Analyst
2002: Berger Financial Group, Equity Analyst
1999 to 2002: Women’s Pro Softball League, Director of Finance/Controller
2000 to 2001: Marsico Endowment Fund, Portfolio Manager
Education:

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

Mitch S. Begun, CFA
Mitch S. Begun, CFA

Partner, Portfolio Manager, Analyst

2003 to Present: Denver Investments
2000 to 2002: Raymond James & Associates, Equity Research Associate
Education:

BSBA – University of North Carolina at Chapel Hill
Member of CFA Institute and CFA Society Colorado

Adam C. Bliss

Partner, Portfolio Manager, Analyst

2004 to Present: Denver Investments
1997 to 2003: Berger Funds, Co-Portfolio Manager and Equity Analyst
Education:

BSBA – Saint Mary’s College of California; MBA – University of Denver

Mark S. Truelsen, CFA
Mark S. Truelsen, CFA

Vice President, Analyst

2001 to Present: Denver Investments
2000 to 2001: RJ Falkner & Co., Junior Research Analyst
1999: Skyline Asset Management, Marketing Assistant
1998 to 1999 Scudder Kemper Investments, Investment Representative
Education:

BA – University of Illinois at Urbana-Champaign
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
Small-Cap Growth (gross) 5.42 6.51 24.29 25.35 13.00 16.26 -
Small-Cap Growth (net) 5.34 6.25 23.38 24.13 11.88 15.11
Russell 2000 Growth Index 5.45 6.22 16.81 20.98 12.17 14.28 -
Small-Cap Growth
Monthly Returns(%) as of 9/30/2017 Gross Net
1 Month 5.42 5.34
3 Months 6.51 6.25
YTD 24.29 23.38
Annualized Returns(%) as of 9/30/2017 Gross Net
1 Year 25.35 24.13
3 Years 13.00 11.88
5 Years 16.26 15.11
10 Years -
Russell 2000 Growth Index
Monthly Returns(%) as of9/30/2017 Gross Net
1 Month 5.45 -
3 Months 6.22 -
YTD 16.81 -
Annualized Returns(%) as of 9/30/2017 Gross Net
1 Year 20.98 -
3 Years 12.17 -
5 Years 14.28 -
10 Years -

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Small-Cap Growth (Gross) 9.81 -3.45 5.23 53.21 12.09 -1.80 - - - -
Small-Cap Growth (Net) 8.72 -4.41 4.18 51.74 11.00 -2.74 - - - -
Russell 2000 Growth Index 11.32 -1.38 5.60 43.30 14.59 -2.91 - - - -
Small-Cap Growth
Year Gross Net
2016 9.81 8.72
2015 -3.45 -4.41
2014 5.23 4.18
2013 53.21 51.74
2012 12.09 11.00
2011 -1.80 -2.74
2010 - -
2009 - -
2008 - -
2007 - -
Russell 2000 Growth Index
Year Gross Net
2016 11.32 -
2015 -1.38 -
2014 5.60 -
2013 43.30 -
2012 14.59 -
2011 -2.91 -
2010 - -
2009 - -
2008 - -
2007 - -

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® Growth Index is an unmanaged index measuring the small growth segment of the U.S. equity universe that is constructed to provide a comprehensive and unbiased barometer of the small-cap growth market. 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

In the second quarter of 2017, growth stocks continued to bounce back relative to value stocks following a significant divergence in 2016. For the three months ended June 30, 2017, the Russell 2000® Growth Index was up 4.39% compared to the 0.67% return of the Russell 2000® Value Index. The last twelve months have been quite a stylistic roller coaster and, interestingly, after the Russell 2000® Value Index’s post-election rally in the fourth quarter of 2016, followed by the Russell 2000® Growth Index’s rally in 2017, the two indexes have performed nearly identically for the last twelve months, returning approximately 25% each. Taking a step back, this has been a remarkable bull market for equities.

Contributors to Return

The three sectors that contributed most to the portfolio’s performance relative to its benchmark in the quarter were information technology, industrials, and health care. The portfolio’s best-performing stock in the quarter was Intersect ENT Inc., a medical device company focused on therapies for patients suffering from chronic sinusitis. The stock outperformed during the second quarter as near-term reimbursement concerns abated, evidenced by solid near-term results. As the market for chronic sinusitis therapies continues to expand, we are excited about the potential for Intersect’s currently available and pipeline products. Another strong contributor was Medidata Solutions Inc., a provider of cloud-based software solutions to clinical development programs within the biopharmaceutical industry. The company outperformed during the second quarter as revenue estimates continued to improve following the announcement of another significant new client win, pharmaceutical company Novartis. We believe there are ample opportunities for innovation within clinical trial development that Medidata will have the potential to capitalize on in the coming years. Another top contributor was LendingTree Inc., the premier lead-generation company for the lending industry. LendingTree continued to gain market share in the industry and expand its product set.

Detractors from Return

The three sectors that detracted most from the portfolio’s performance relative to its benchmark in the quarter were energy, consumer discretionary, and telecommunication services. The portfolio’s worst-performing stock in the quarter was IMAX Corp, a leader in film technologies. Despite a strong growth rate for new IMAX installations, the company suffered as global box office sales for films has been consistently weak. We believe the growth opportunity for IMAX screens remains robust, particularly in China. Recent cost reductions and stock buyback authorization should, in our opinion, help support the stock at its current valuation. PDC Energy Inc., an exploration and production company focused on operations in the Niobrara Formation and Permian Basin, was a significant detractor in the quarter. Regulatory concerns in Colorado drove the stock’s underperformance in the quarter, however, we believe the issues will prove transitory and have limited impact on the company’s long-term growth prospects. PDC has, in our opinion, continued to execute well and grow production. Glaukos Corp., a developer of micro-invasive glaucoma surgery products designed to reduce fluid pressure in the eye, underperformed in the second quarter. This was due to suboptimal sales of its flagship iStent product following a recent price increase. Ultimately, we believe physician acceptance of iStent will be driven by quality clinical outcomes, a lack of alternative treatment options, and beneficial reimbursement changes.

Outlook and Positioning

As of the end of the second quarter of 2017, the portfolio was overweighted in the consumer discretionary and financial sectors and underweighted primarily in the health care and industrials sectors.

The current economic recovery remains one of the longest on record, now sitting at 96 months. We still believe that we are in the later innings of an economic cycle. Despite this, the economy has continued to chug along at a relatively low-growth rate and we believe this favors strong growth companies that are less dependent on economic growth or cyclical trends. However, in our opinion, valuations have become increasingly difficult to justify in some of the higher-growth areas of the market. As a result, we have been actively executing our risk management disciplines by trimming or exiting positions in some of the more expensive areas of the market, as they achieve our price targets.



Stock Performance (3 months ended 6/30/2017)
Top 5 Stocks Average Weight Contribution to Return
Intersect ENT Inc 1.05% 0.61
Medidata Solutions, Inc. 1.62 0.52
LendingTree, Inc. 1.45 0.50
Take-Two Interactive Software, Inc. 0.95 0.49
Albany Molecular Research, Inc. 0.66 0.43
Bottom 5 Stocks Average Weight Contribution to Return
IMAX Corporation 1.44% -0.62
PDC Energy Inc 1.34 -0.49
Nevro Corp. 1.62 -0.40
Glaukos Corp 1.74 -0.38
National CineMedia, Inc. 0.72 -0.38
Top 5 Stocks
Intersect ENT Inc
Average Weight 1.05%
Contribution to Return 0.61
Medidata Solutions, Inc.
Average Weight 1.62
Contribution to Return 0.52
LendingTree, Inc.
Average Weight 1.45
Contribution to Return 0.50
Take-Two Interactive Software, Inc.
Average Weight 0.95
Contribution to Return 0.49
Albany Molecular Research, Inc.
Average Weight 0.66
Contribution to Return 0.43
Bottom 5 Stocks
IMAX Corporation
Average Weight 1.44%
Contribution to Return -0.62
PDC Energy Inc
Average Weight 1.34
Contribution to Return -0.49
Nevro Corp.
Average Weight 1.62
Contribution to Return -0.40
Glaukos Corp
Average Weight 1.74
Contribution to Return -0.38
National CineMedia, Inc.
Average Weight 0.72
Contribution to Return -0.38

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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