Small/Mid Cap Value Strategy


Baird Equity Asset Management’s Small/Mid Cap Value portfolio invests in small- to medium-cap U.S. companies and seeks to provide superior risk-adjusted returns and consistently outperform the benchmark Russell 2500 Value Index over a full market cycle (typically 3–5 years). The portfolio comprises companies we expect to exceed street expectations and that trade at discounts to our proprietary calculations of fair value. To help control risks, the portfolio is generally diversified among companies in a broad range of industries and economic sectors.

Portfolio Construction

  • A concentrated portfolio of generally 40–50 stocks
  • A market cap range typically from $300 million to $10 billion at purchase 
  • Top holdings generally limited to 5% at cost, 8% at market
  • Sectors capped at 30% excluding financials 
  • Buy-and-hold approach

For more information, contact Rob Zwiebel or the Intermediary Specialist in your region.


Q3 2017 Small/Mid Value and Small Value Commentary

As if a bell rang, small and mid-cap stocks sprung to life in September to post strong returns for the month and saving the third quarter of 2017 from negative territory. The renewed hopes for tax reform sparked the rally in the smaller indices which had traded mostly lower over the summer. Despite the recent spurt higher, however, large cap and growth indices remain ahead of small cap and value indices so far this year. 

On the heels of the most recent run, market commentary has increasingly focused on valuations which admittedly look rich versus history, especially since earnings growth has rolled over again this quarter for the Russell 2000. That means higher stock prices are being driven by higher multiples, an unsustainable trend. To support a meaningful advance from here, we would look for help from lower corporate tax rates and the re-emergence of earnings growth. 

On a positive note, quality stocks continue to trade at significant discounts to historical valuations. As measured by price-to-sales and price-to-book, the highest return on equity (ROE) companies in our benchmark trade at roughly half the relative valuation of the lowest return on equity companies. That's good news for our portfolios which are packed with high quality businesses in the top quintile of profitability as measured by ROE....40% of holdings or twice the benchmark. That's not a coincidence, but instead a by-product of our process, which seeks to identify superior companies which are temporarily under-appreciated by the market.

Read Full Small or Small/Mid Value Commentary