Baird Launches Small Cap Value Fund
Experienced team led by Michelle Stevens to manage the fund
MILWAUKEE, May 1, 2012
Baird, an employee-owned, international asset management, capital markets, private equity and wealth management firm, today launched the Baird Small Cap Value Fund (BSVIX/BSVSX). In January, Baird announced the addition of a new small/mid cap equity team led by Michelle Stevens, CFA, a veteran small cap value investor. Stevens and her team will manage the new fund.
Prior to Baird, Stevens spent 17 years managing small, mid and all cap value portfolios. She was a portfolio manager with Transamerica Investment Management where she was responsible for both institutional accounts and the Transamerica Small/MidCap Value Fund (IIVAX) from March 2004 through September 2008.
“Given capacity constraints among small cap funds, we are excited to add this fund to the Baird Funds Family,” said Mary Ellen Stanek, Managing Director and President of the Baird Funds. “Michelle and her team have an excellent track record and deep experience managing small cap portfolios.”
The Fund is no-load and, like the other stock funds in the Baird fund family, it has an .85% management fee. The expense ratio is 1.1% for the institutional class and 1.25% for the investor class.
We spoke with Stevens about her investment approach and her outlook for small caps.
What is your investment philosophy?
Value and growth investing don’t have to be mutually exclusive. We look to invest in great businesses with strong balance sheets and good competitive positions at attractive valuations.
How do you select stocks to invest in?
Our research centers around identifying companies with the opportunity for earnings surprise and commensurate price/earnings multiple expansion. To do so, we seek inflection points at which positive change will begin to drive profitability higher than anticipated. We run our own financial models and earnings estimates and identify 40 to 60 companies that we believe are undervalued.
How long do you tend to own stocks in your portfolio?
Our Portfolios are fully invested with turnover of roughly 25 to 40% - which has tax advantages for our investors. We strive to identify trends early so we can hold on to winners longer as business trends develop. However, not every idea works out. If a company is not making progress toward our expectations, that’s a signal to look for another opportunity.
Are you bottom-up or top-down investors? Do you pay attention to the economy?
We are primarily bottom-up investors, but we do have a macroeconomic overlay and try to incorporate expectations for the economy into the sectors in which we invest. For example, we might re-evaluate our revenue assumptions for a retailer in anticipation of an economic downturn.
What sectors do you like now?
One broad theme in the portfolio seeks to invest in businesses that benefit from a more value-conscious consumer and tighter lending standards domestically. This theme spans multiple sectors with holdings in dollar stores, rent-to-own operators and unconventional lenders. We also like businesses that help the world meet its insatiable demand for energy. This is timely, as disruptions to supply additions during the credit crisis are beginning to make themselves felt by way of higher oil prices as demand returns. In this space, we have exposure to liquefied natural gas and oil infrastructure, the domestic electric grid and shale plays. One additional portfolio theme seeks to benefit from the long-term secular growth trend toward online services. Although, these technologies may seem reserved for growth managers, we have identified multiple companies which sell at valuations below market multiples in areas such as domain registry, online bill pay and digital book distribution.
Is now a good time to invest in small cap stocks relative to large caps?
We think the valuation of small cap stocks relative to large caps is attractive, particular relative to the their respective earnings and revenue growth profiles For many large caps, earnings growth has come largely from cost cutting and currency. Small caps also have roughly half the international exposure as large caps, a characteristic we value given credit conditions in Europe and China’s economic slowdown. Finally, higher quality small cap stock, such as those we own, are still playing catch following outsized gains for lower quality companies coming out of the recession.
Are mergers and acquisitions important to your strategy?
We had three companies bought out last year. The companies in which we invest tend to make good acquisition candidates because of their attractive margins and market positions, but also tend to be acquisitive due to their strong cash flow profiles. Overall, we expect more M&A versus new capital investment as businesses look for more visible ways to grow their revenues.
About Baird’s Asset Management Team
Baird Advisors, Baird Investment Management and Baird Public Investment Advisors manage $18 billion dollars for institutions, public entities, high net worth individuals and the Baird Funds. The Baird Funds Family includes Baird Aggregate Bond Fund, Baird Core Plus Fund, Baird Intermediate Bond Fund, Baird Intermediate Municipal Bond Fund, Baird Short-term Bond Fund, Baird MidCap Fund and Baird LargeCap Fund.
Baird is an employee-owned, international wealth management, capital markets, private equity and asset management firm with offices in the United States, Europe and Asia. Established in 1919, Baird has more than 2,700 associates serving the needs of individual, corporate, institutional and municipal clients. Baird has more than $87 billion in client assets. Committed to being a great place to work, Baird ranked No. 21 on FORTUNE’s 100 Best Companies to Work For in 2012 – its ninth consecutive year on the list. Baird’s principal operating subsidiaries are Robert W. Baird & Co. in the United States and Robert W. Baird Group Ltd. in Europe. Baird also has an operating subsidiary in Asia supporting Baird’s private equity operations. For more information, please visit Baird’s Web site at rwbaird.com
The Fund normally invests at least 80% of its net assets in common stocks of value companies with small market capitalizations. The Fund seeks to identify industries and business models that it believes are priced at a discount to their true value because they are currently out of favor with the market or have earnings or profit potential that may be underestimated by Wall Street analysts. The Fund seeks to purchase small-cap securities believed to have favorable valuation characteristics and opportunities for increased growth. The Fund may invest up to 15% of its total assets in equity securities (consisting of common stocks, ordinary shares and ADRs) of foreign companies that are traded on U.S. exchanges. Small capitalization stocks often are more volatile and face greater risks than larger, more established companies.
Past performance is not a guarantee of future results.
Investors should consider the investment objectives, risks, charges and expenses of each fund carefully before investing. This and other information is found in the prospectus. For a prospectus, contact Baird Funds directly at 866-44BAIRD or contact your Baird Financial Advisor. Please read the prospectus carefully before investing.