Mid Cap Growth Strategy

OVERVIEW

The Baird Mid Cap Growth Strategy invests in U.S. mid-cap companies and is managed with a strong emphasis on risk control and a long-term perspective. The team strongly believes in having a true mid-cap product, with the majority of the portfolio invested in companies between $2B and $15B in market cap. The primary investment goal is to provide consistent, superior-to-market returns at a risk posture less than that of the market (vs. the Russell Midcap Growth Index). The team does this by finding companies for inclusion in the portfolio that have better growth prospects and capital structures than peers.

Portfolio Construction

  • A concentrated portfolio of generally 50–60 stocks
  • A majority of market cap range from $2 billion to $15 billion
  • The average position is 1%–3%, not to exceed 5% 
  • Sector weights 75%–125% relative to the benchmark, generally limited to 30% of portfolio
TEAM

For more information, contact Todd Haschker or the Intermediary Specialist in your region.

COMMENTARY

Q1 2018 Mid Cap Growth Commentary

Market Update

Equity markets started the new year buoyed by the recently passed U.S. tax bill, rising earnings estimates. and the continuation of heightened corporate and consumer confidence. A strong January stock market advance capped a run of 15 consecutive months with positive returns, stretching back to the election of 2016. The remaining two months of the quarter were marked by significant stock price volatility, inflation fears, and angst over proposed tariffs against trading partners. The return of volatility stood in sharp contrast to the benign investment environment of 2017.  

Portfolio Commentary

Clients of the Baird Mid Cap Growth portfolio enjoyed both solid absolute and relative returns during the period, when compared with our primary benchmark, the Russell® Midcap Growth Index. Portfolio returns were fairly broad-based as six of nine economic sectors showed positive relative results led by consumer discretionary and healthcare.  

Interestingly, even with domestic economic activity strengthening and expectations for further improvement in 2018, the more economically sensitive areas of the market struggled to perform in the first quarter. Heightened volatility appeared to take its toll in certain sectors of the benchmark; notably, materials, energy, producer durables, and consumer discretionary struggled relative to healthcare, technology (especially software and services) and consumer staples. A more in depth discussion of sector performance and portfolio changes follow.

The consumer discretionary sector drove the strongest relative returns with performance benefitting from a diversified mix of strong businesses that are executing well. The ability of business models like Ollie’s Bargain Outlet, Burlington Stores, Domino’s, and lululemon to expand their footprint, driving sales and returns has led to outperformance even in recent periods of choppy consumer spending. Also, a lack of portfolio exposure to bigger ticket spending areas within the sector, including homebuilding, building products and recreational vehicles proved beneficial in the quarter. There are opportunities in these industries, but our assessment of the risk/return equation has us watching from the outside for now. As far as changes, we trimmed back Burlington Stores on significant strength. In order to keep our exposure in retail, we returned to prior holding, O’Reilly Automotive. We believe O’Reilly is past some transitory weather and industry disruptions, which should result in better sales growth in 2018; we have also grown more comfortable with O’Reilly’s ability to maintain its strong competitive position in an Amazon-affected retail world.

Read Full Baird Mid Cap Growth Commentary

PERFORMANCE

Annualized Returns (%)

 3 MonthsYTD1-Year3-Year5-Year10-YearSince InceptionInception Date
Baird Mid Cap Growth Equity (gross) 4.64 4.64 22.91 9.80 12.23 12.00 12.17 6/30/93
Baird Mid Cap Growth Equity (net) 4.48 4.48 22.10 9.05 11.44 11.31 11.56 6/30/93
Russell MidCap® Index 2.17 2.17 19.74 9.17 13.31 10.61 9.99


Annual Total Returns (%)

20172016201520142013201220112010200920082007
Baird Mid Cap Growth Equity (gross) 29.97 6.37 -2.78 5.80 34.13 17.64 5.60 28.17 41.75 -40.25 21.18
Russell Midcap Growth Index 25.27 7.33 -0.20 11.90 35.75 15.82 -1.66 26.38 46.29 -44.32 11.43

*Data as of 3/31/18