International Small-Cap

International Equity

Investment Strategy

Denver Investments’ International Small-Cap strategy is based on the belief that investing in businesses trading at a significant discount to intrinsic value leads to consistent outperformance over time. Utilizing a bottom-up approach grounded in independent fundamental research, the team constructs a high conviction portfolio designed to generate alpha primarily through stock selection.

Portfolio Management

We seek to invest in international small-cap companies we believe are high quality and growing rapidly that are also trading at attractive valuations. – John C. Fenley, CFA

John C. Fenley, CFA

John C. Fenley, CFA

Partner, Director of International Portfolio Management, Portfolio Manager

Jeremy A. Duhon, CFA

Jeremy A. Duhon, CFA

Partner, Director of International Research, Portfolio Manager

Portfolio Construction Guidelines:

  • Approximately 35-60 stocks
  • Minimum/maximum position size: 1%/ 6%
  • Maximum in non-benchmark securities: 100%
  • Maximum in emerging markets: 15%
  • Fully invested: typically less than 5% cash
Benchmark:

MSCI ACWI ex-US Small-Cap-ND 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

John C. Fenley, CFA
John C. Fenley, CFA

Partner, Director of International Portfolio Management, Portfolio Manager

2000 to Present: Denver Investments
1997 to 2000: Hansberger Global Investors, Inc., Vice President of Research
1995 to 1997: Sun Trust Bank, Vice President and Portfolio Manager
1990 to 1995: Fifth Third Bank, Portfolio Manager and Equity Analyst
Education:

BA – Vanderbilt University; MBA – Duke University
Member of CFA Institute and CFA Society Colorado

Jeremy A. Duhon, CFA
Jeremy A. Duhon, CFA

Partner, Director of International Research, Portfolio Manager

2004 to Present: Denver Investments
2002 to 2004: El Pomar Foundation, Senior Investment Fellow
Education:

BA – Pomona College
Member of CFA Institute and CFA Society Colorado

Masha Carey, CFA
Masha Carey, CFA

Analyst

2017 to Present: Denver Investments
2011 to 2016: Eaton Vance, Senior Research Associate
Education:

BA – New York University
Member of CFA Institute and CFA Society Boston

Ryan J. Deliefde, CFA, CPA
Ryan J. Deliefde, CFA, CPA

Analyst

2014 to Present: Denver Investments
2012 to 2014: PricewaterhouseCoopers, Senior Associate
Education:

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

Sean Dixon
Sean Dixon

Analyst

2016 to Present: Denver Investments
2008 to 2016: Madison Street Partners, Analyst
Education:

BS – University of Denver

Rico Fung
Rico Fung

Analyst

2016 to Present: Denver Investments
2015: Pendant, Co-founder
Education:

BA – University of Chicago

Andrea Gerdes
Andrea Gerdes

Analyst

2017 to Present: Denver Investments
Education:

BS, BSBA, MBA – University of Denver

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
International Small-Cap (gross) 2.17 9.39 26.74 19.30 6.50 7.68 6.48
International Small-Cap (net) 2.06 9.06 25.59 17.84 5.18 6.35 5.20
MSCI ACWI ex USA Small Cap Index 2.15 6.90 23.54 19.19 8.14 9.68 3.58
MSCI EAFE Small Cap Index 2.85 7.46 25.42 21.84 11.13 12.85 4.63
International Small-Cap
Monthly Returns(%) as of 9/30/2017 Gross Net
1 Month 2.17 2.06
3 Months 9.39 9.06
YTD 26.74 25.59
Annualized Returns(%) as of 9/30/2017 Gross Net
1 Year 19.30 17.84
3 Years 6.50 5.18
5 Years 7.68 6.35
10 Years 6.48 5.20
MSCI ACWI ex USA Small Cap Index
Monthly Returns(%) as of9/30/2017 Gross Net
1 Month 2.15 -
3 Months 6.90 -
YTD 23.54 -
Annualized Returns(%) as of 9/30/2017 Gross Net
1 Year 19.19 -
3 Years 8.14 -
5 Years 9.68 -
10 Years 3.58
MSCI EAFE Small Cap Index
Monthly Returns(%) as of9/30/2017 Gross Net
1 Month 2.85 -
3 Months 7.46 -
YTD 25.42 -
Annualized Returns(%) as of 9/30/2017 Gross Net
1 Year 21.84 -
3 Years 11.13 -
5 Years 12.85 -
10 Years 4.63

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
International Small-Cap (Gross) 1.70 2.96 -17.07 24.23 26.78 -4.26 37.30 66.53 -48.04 4.49
International Small-Cap (Net) 0.44 1.68 -18.12 22.70 25.17 -5.45 35.87 64.96 -48.59 2.94
MSCI ACWI ex USA Small Cap Index 3.91 2.60 -4.03 19.73 18.52 -18.50 25.21 62.91 -50.23 10.74
MSCI EAFE Small Cap Index 2.18 9.59 -4.95 29.30 20.00 -15.94 22.04 46.78 -47.01 1.45
International Small-Cap
Year Gross Net
2016 1.70 0.44
2015 2.96 1.68
2014 -17.07 -18.12
2013 24.23 22.70
2012 26.78 25.17
2011 -4.26 -5.45
2010 37.30 35.87
2009 66.53 64.96
2008 -48.04 -48.59
2007 4.49 2.94
MSCI ACWI ex USA Small Cap Index
Year Gross Net
2016 3.91 -
2015 2.60 -
2014 -4.03 -
2013 19.73 -
2012 18.52 -
2011 -18.50 -
2010 25.21 -
2009 62.91 -
2008 -50.23 -
2007 10.74 -
MSCI EAFE Small Cap Index
Year Gross Net
2016 2.18 -
2015 9.59 -
2014 -4.95 -
2013 29.30 -
2012 20.00 -
2011 -15.94 -
2010 22.04 -
2009 46.78 -
2008 -47.01 -
2007 1.45 -

*2006 calendar year returns for the product and benchmark are for the period 7/1/2006 through 12/31/2006.

**Please note that effective January 1, 2015, the product changed its benchmark from the MSCI EAFE Small-Cap Index to the MSCI ACWI ex-USA Small-Cap Index. Download the fact sheet to see the most recent performance and GIPS disclosure.

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 MSCI EAFE Small-Cap Index is an unmanaged market-capitalization weighted index that represents the performance of smaller capitalization companies in developed stock markets outside of North America. The index targets all companies with market capitalization below that of the companies in the MSCI EAFE Index and up to 99% coverage of the freefloat adjusted market capitalization in each market. MSCI is the source and owner of the MSCI 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 Investment Advisors LLC 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

Global equity markets, both developed and emerging, were generally strong in the second quarter. Despite headwinds created by geopolitical uncertainty in specific regions, earnings growth appeared to be leading stocks higher. Interestingly, volatility remained low, even as the risk of media coverage having an adverse impact on markets was highlighted on an almost daily basis. Stocks were exceptionally strong at the beginning of the quarter, but were showing weakness by quarter-end. This may be an indication that global geopolitical headlines are beginning to factor into investors’ appetite for global equities.

Contributors to Return

At the company level, the largest contributors to performance were Arcland Service Holdings Co. Ltd. and Quailcorp SA. Arcland is a Japan-based operator of mostly fast casual deep-fried tonkatsu (pork cutlet) restaurants. Profits have been growing at a double-digit rate as it offers quality meals at a reasonable price through its low-cost operating structure. Using state-of-the-art deep fryers, Arcland can produce consistent quality tonkatsu at a fast rate with fewer employees than its competitors. We anticipate that store openings, same-store sales growth, and new restaurant formats should continue to drive growth. Brazil-based Qualicorp, an intermediary between health and dental insurers and companies offering these benefits to employees, was another contributor to performance. It benefited from being one of the first companies to serve the affinity market, which are companies or organizations that have common interests and have partnered to create a larger consumer base. This has given Qualicorp scale that can benefit its clients when negotiating with insurers. We believe that the company will continue to prosper from the growing affinity market.

Detractors from Return

Stocks that detracted from the portfolio’s performance for the quarter include Sapiens International Corp. and Utilitywise Plc. Sapiens, headquartered in Israel, is a global provider of software solutions for the insurance industry. In addition to software development, Sapiens has distinguished itself from major competitors by also managing the delivery and implementation of its software. During the quarter, Sapiens trimmed its guidance for 2017 earnings estimates following the loss of a major client. We have spoken to management about this client loss and have conducted additional research. The company’s business model remains intact and we believe demand for its software and services should continue to grow over the medium to long term. Utilitywise is a United Kingdom-based consultant to businesses regarding energy and water consumption. It focuses on helping small and medium-sizes enterprise businesses procure better utility rates as its negotiating power with the utility companies is often stronger than these companies could get on their own. Recently, shares have been under pressure due to management changes and the prospect of weakening consumption by some clients. The management changes, along with deteriorating working capital, led us to exit the position.

Outlook and Positioning

Despite the negative news from a couple of detractors, we are quite optimistic about the portfolio’s positioning based on the number of holdings that have grown revenue and earnings over the past quarter. In our experience, companies rarely grow consistently quarter after quarter or year after year. We monitor the revenue and earnings evolution of all of the portfolio’s holdings and are encouraged that the majority are experiencing meaningful growth in both areas. Our hope is that the portfolio’s holdings will continue to post operational strength, which we expect will translate into performance success.



Stock Performance (3 months ended 6/30/2017)
Top 5 Stocks Average Weight Contribution to Return
Qualicorp S.A. 3.03% 0.94
Arcland Service Holdings Co., Ltd. 3.12 0.86
Azimut Holding Spa 3.06 0.62
CellaVision AB 2.39 0.59
Corporate Travel Management Limited 3.82 0.56
Bottom 5 Stocks Average Weight Contribution to Return
Sapiens International Corp. NV 2.53% -0.37
Utilitywise Plc 0.12 -0.28
M&A Capital Partners Co. Ltd. 1.14 -0.16
MTY Food Group Inc. 2.47 -0.13
G8 Education Limited 1.79 -0.09
Top 5 Stocks
Qualicorp S.A.
Average Weight 3.03%
Contribution to Return 0.94
Arcland Service Holdings Co., Ltd.
Average Weight 3.12
Contribution to Return 0.86
Azimut Holding Spa
Average Weight 3.06
Contribution to Return 0.62
CellaVision AB
Average Weight 2.39
Contribution to Return 0.59
Corporate Travel Management Limited
Average Weight 3.82
Contribution to Return 0.56
Bottom 5 Stocks
Sapiens International Corp. NV
Average Weight 2.53%
Contribution to Return -0.37
Utilitywise Plc
Average Weight 0.12
Contribution to Return -0.28
M&A Capital Partners Co. Ltd.
Average Weight 1.14
Contribution to Return -0.16
MTY Food Group Inc.
Average Weight 2.47
Contribution to Return -0.13
G8 Education Limited
Average Weight 1.79
Contribution to Return -0.09

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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