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

Q4 2017 Mid Cap Growth Commentary

Market Update

The continuation of positive economic activity coupled with the passage of tax reform, and its anticipated growth benefits, drove stocks higher in the year's final quarter. The Federal Reserve again raised short-term interest rates in December, marking the third increase in 2017, and signaled additional hikes in the New Year, reinforcing a view of further economic improvement.  

Portfolio Commentary

Clients of the Baird Mid Cap Growth portfolios participated in the strong fourth quarter returns, but lagged our primary benchmark, the Russell® Midcap Growth Index. Full-year stock market gains were the strongest since 2013 and annual results for clients exceeded the benchmark. We were pleased with the overall performance of the portfolio and most notably the fundamental strength exhibited by the businesses. Our sector thoughts and a more in depth description of portfolio changes follow.  

The consumer discretionary sector played an important role all year in driving strong relative performance results. The contribution from the sector in the fourth quarter reflected a more favorable investment environment for retail and apparel companies, spurred by anticipated benefits from tax reform and increased seasonal spending in the most important retail period. Notably, Burlington Stores, lululemon, Dollar General, and Ollie's Bargain Outlet posted strong gains. . The question of sustainability regarding increased consumer spending and the ever present sector impact of Amazon will play out over multiple quarters; the strategy for us is to remain diversified across multiple end markets and to opportunistically trim into strength when the risk/reward equation warrants. Adjustments made in the quarter included trims of Ollie’s Bargain Outlet and Dollar General after continued strength and the sale of Fortune Brands and Hasbro. We sold Hasbro during the month as we believe the Toys“R”Us bankruptcy increases the risk of inventory and profit disruption in the toys category for the near future. We sold Fortune Brands to make room for Beacon Roofing in the materials sector, as we believe it offers a better return profile while retaining similar end-market exposure. We added to Burlington Stores following a price pullback and LKQ after a visit with senior management reinforced our favorable view of the company’s potential. The portfolio enters the New Year in an equal-weight position with continued exposure to multiple spending categories, including auto-related, entertainment, home products, leisure, restaurants, and retail.

Read Full Baird Mid Cap Growth Commentary

PERFORMANCE

Annualized Returns (%)

 3 MonthsYTD1-Year3-Year5-Year10-YearSince InceptionInception Date
Baird Mid Cap Growth Equity (gross) 5.74 27.97 27.97 9.79 13.43 9.74 12.09 6/30/93
Baird Mid Cap Growth Equity (net) 5.56 27.08 27.08 9.02 12.63 9.07 11.49 6/30/93
Russell MidCap® Index 6.81 25.27 25.27 10.30 15.30 9.10 10.00


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 12/31/17