Quantitative Equity

Investment Strategy

Denver Investments’ Micro-Cap strategy is based on the belief that inefficiencies in the micro-cap universe are best exploited through a disciplined quantitative approach. The team utilizes sector-specific modeling based on proprietary factors that combine quantitative and fundamental insights. The team constructs the portfolio through an optimization process designed to maximize returns and minimize risk relative to the benchmark.

Portfolio Management

We employ a quantitative approach to investing, one that utilizes fundamental factors, which we believe are predictive of long-term stock price performance. – Paul A. Kuppinger, CFA

Paul A. Kuppinger, CFA

Paul A. Kuppinger, CFA

Vice President, Portfolio Manager, Quantitative Analyst

Portfolio Construction Guidelines:

  • Approximately 150-200 stocks
  • Maximum initial position size of 85 bps
  • Sector sensitive: +/- 3% of the absolute sector weight of the benchmark
  • Fully invested: typically less than 5% cash

Russell Microcap® Index

Investment Minimum:


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

Paul A. Kuppinger, CFA
Paul A. Kuppinger, CFA

Vice President, Portfolio Manager, Quantitative Analyst

2006 to Present: Denver Investments
2003 to 2006: Rocky Mountain Wealth Advisors, Principal
2002 to 2003: Curian Capital, Vice President of Research
1998 to 2002: Prima Capital, Director of Research
1997 to 1998: KPMG, Research Analyst
1993 to 1995: Westcap Investors, Trader
1990 to 1993: Wilshire Associates, Supervisor of Performance Measurement

BA – The Colorado College; MBA – University of Colorado
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

BA and MA – University of Northern Colorado

Performance (%)

  Monthly Returns (%)
Periods Ended: 10/31/2017
Annualized Returns (%)
Periods Ended: 9/30/2017
1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
Micro-Cap (gross) 1.25 6.41 6.75 22.29 12.62 14.75 -
Micro-Cap (net) 1.15 6.08 5.65 20.80 11.24 13.34
Russell Microcap Index -0.16 7.08 10.99 22.33 12.16 13.89 -
Monthly Returns(%) as of 10/31/2017 Gross Net
1 Month 1.25 1.15
3 Months 6.41 6.08
YTD 6.75 5.65
Annualized Returns(%) as of 10/31/2017 Gross Net
1 Year 27.13 25.58
3 Years 10.09 8.73
5 Years 15.32 13.90
10 Years -
Russell Microcap Index
Monthly Returns(%) as of10/31/2017 Gross Net
1 Month -0.16 -
3 Months 7.08 -
YTD 10.99 -
Annualized Returns(%) as of 10/31/2017 Gross Net
1 Year 29.52 -
3 Years 9.86 -
5 Years 14.57 -
10 Years -

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Micro-Cap (Gross) 26.05 -3.72 3.86 48.06 17.11 -2.26 35.23 17.07 -19.49 -
Micro-Cap (Net) 24.51 -4.92 2.57 46.46 15.94 -3.25 33.50 15.55 20.04 -
Russell Microcap Index 20.37 -5.16 3.66 45.62 19.75 -9.27 28.89 27.48 -28.71* -
Year Gross Net
2016 26.05 24.51
2015 -3.72 -4.92
2014 3.86 2.57
2013 48.06 46.46
2012 17.11 15.94
2011 -2.26 -3.25
2010 35.23 33.50
2009 17.07 15.55
2008 -19.49 20.04
2007 - -
Russell Microcap Index
Year Gross Net
2016 20.37 -
2015 -5.16 -
2014 3.66 -
2013 45.62 -
2012 19.75 -
2011 -9.27 -
2010 28.89 -
2009 27.48 -
2008 -28.71* -
2007 - -

*2008 calendar year returns for the product and benchmark are for the period 7/1/2008 through 12/31/2008.

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 Microcap® Index measures the performance of the microcap segment of the U.S. equity market. It makes up less than 3% of the U.S. equity market. It includes 1,000 of the smallest securities in the Russell 2000 Index based on a combination of their market cap and current index membership and it includes the next 1,000 securities. 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 Environment

After performing poorly in the first quarter of 2017, micro-cap stocks rebounded in the second quarter, with the Russell Microcap® Index up 3.83% for the three months ended June 30, 2017. Once again, stocks that we view as expensive outperformed companies with high cash flow to price and other positive valuation metrics. Stocks with solid return on equity were mixed, but those with higher quality (as measured by the Piotroski score) outperformed. Stocks with low volatility and higher historical trading volume outperformed less-volatile and less-liquid stocks.

Contributors to Return

The portfolio’s best-performing sectors, relative to the benchmark, were health care, energy, and materials. Among the portfolio’s best-performing holdings this quarter was MiMedx Group Inc., a biopharmaceutical company that delivers innovative bioactive healing products for tissue regeneration. The company reported better-than-expected results for the first quarter. RetailMeNot Inc. was another significant contributor to the portfolio’s performance in the quarter. This online aggregator of digital coupons for dining and shopping was acquired during the quarter. Another strong performer was Massachusetts-based Lantheus Holdings Inc. This medical imaging solutions company reported better-than-expected results for the first quarter and also raised guidance for its full-year 2017 earnings estimates.

Detractors from Return

The portfolio’s weakest sectors relative to the benchmark were telecommunications services, financials, and information technology. Among the portfolio’s detractors in the quarter was DHI Group Inc., a leading provider of data, insights, and employment connections to specialized professional communities. The stock struggled after the company announced that it had concluded its exploration of alternative of ownership options and would continue to operate independently. Another detractor from the portfolio’s performance in the quarter was magicJack VocalTec Ltd., a provider of voice over internet protocol (VOIP) solutions. The company reported several one-time expenses, including a $31.5 million charge related to its recent acquisition, Broadsmart Global Inc. Net 1 UEPS Technologies Inc. also hampered the portfolio’s performance in the quarter. The company provides secure financial transaction channels for populations with limited access to formal banking options. Its stock underperformed after Net 1 UEPS received some bad press regarding its subsidiary that distributes welfare grants in South Africa.

Outlook and Positioning

Despite the uncertainty around the timing of pro-growth policy changes proposed by the new administration, stock market volatility remains at extremely low levels. Additionally, we see continued signs of optimism for small companies. Non-residential fixed investment spending increased by 11% in the quarter, which to us suggests that increased optimism among CEOs and CFOs is translating into actual activity. U.S. consumer confidence also remains high. While it certainly does not appear to be a low-risk environment for stocks, particularly as valuations have increased in recent years, we are still finding some reasonably priced micro-cap stocks.

Stock Performance (3 months ended 6/30/2017)
Top 5 Stocks Average Weight Contribution to Return
MiMedx Group, Inc. 0.82% 0.35%
OraSure Technologies, Inc. 1.02 0.32
RetailMeNot, Inc. 0.54 0.31
Lantheus Holdings Inc 0.88 0.31
Bassett Furniture Industries, Inc. 0.82 0.31
Bottom 5 Stocks Average Weight Contribution to Return
Bristow Group Inc. 0.37% -0.22
DHI Group, Inc. 0.60 -0.20
Net 1 UEPS Technologies, Inc. 0.61 -0.15
magicJack VocalTec Ltd. 0.78 0.-15
Zumiez Inc. 0.34 -0.14
Top 5 Stocks
MiMedx Group, Inc.
Average Weight 0.82%
Contribution to Return 0.35%
OraSure Technologies, Inc.
Average Weight 1.02
Contribution to Return 0.32
RetailMeNot, Inc.
Average Weight 0.54
Contribution to Return 0.31
Lantheus Holdings Inc
Average Weight 0.88
Contribution to Return 0.31
Bassett Furniture Industries, Inc.
Average Weight 0.82
Contribution to Return 0.31
Bottom 5 Stocks
Bristow Group Inc.
Average Weight 0.37%
Contribution to Return -0.22
DHI Group, Inc.
Average Weight 0.60
Contribution to Return -0.20
Net 1 UEPS Technologies, Inc.
Average Weight 0.61
Contribution to Return -0.15
magicJack VocalTec Ltd.
Average Weight 0.78
Contribution to Return 0.-15
Zumiez Inc.
Average Weight 0.34
Contribution to Return -0.14

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.

Micro-Caps: Expanding the Investment Opportunity Set

The investment team shares its thoughts on why micro-cap stocks present a unique opportunity to long-term investors.


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