Milwaukee, December 1, 2015 – Baird Funds today launched the Baird Small/Mid Cap Value Fund (BMVIX/BMVSX). The fund will be managed by Michelle Stevens, who also manages Baird Small Cap Value Fund (BSVIX/BSVSX).
"This fund is a natural extension of our value equity team's product offerings," said Reik Read, Managing Director. "Michelle has a 15-year history managing small/mid value accounts for institutional clients, so we are pleased to expand our stock fund line up to provide an additional vehicle for investors."
The Baird Small/Mid Cap Value Fund will seek long-term capital appreciation by investing in a diversified portfolio of common stocks of companies with small to medium market capitalizations. Click here to read the prospectus.
Said Michelle Stevens, Senior Vice President and Portfolio Manager, "This fund combines the benefits of small and mid cap investing in one portfolio. Both small and mid cap stocks tend to grow faster, and a 'SMID' portfolio allows us to hold on to growing small cap companies longer as they grow into the mid cap range." Following is a conversation with Stevens about the fund.
You've managed small/mid (SMID) cap portfolios going back to 2000 on a separate account basis. Why do you like this market cap range?
I began my career managing SMID portfolios and always had a bias toward small and mid cap companies. A SMID portfolio leverages the strong historical returns of small and mid cap companies. Additionally, a SMID portfolio allows us latitude to go up and down capitalization based on market conditions, provides for a larger pool of investment candidates and typically offers less volatility or standard deviation than a small cap only portfolio. There are benefits to both types of portfolios – pure small or SMID – depended on investors' unique needs. Smaller companies have the potential to grow more rapidly. Mid caps have matured and can be more aggressive in terms of M&A and can take better advantage of the competitive position.
How will this fund be different from Baird Small Cap Value?
It will be managed very similarly other than the market cap range and benchmark. Baird Small Cap Value focuses on companies with market caps between $300 million and $3 billion. But Baird Small/Mid cap value can invest in companies with a $300 million market cap all the way up to $10 billion. How we pick individual stocks, the investment philosophy, process and portfolio construction will be similar for both funds.
The Baird Small Cap Value Fund should offer a more pure-play on faster growing smaller companies. The Baird Small/Mid Cap Value Fund should offer slightly lower standard deviation and less volatility given a slightly higher market capitalization.
Looking at your small/mid cap portfolios, are there certain sectors of the market where you are finding value?
No one sector is consistent. We are value investors trying to uncover growth that is mispriced and our sectors tend to move around. To find opportunities, our investment process includes a macro overlay with can lead us to multiple investment opportunities.
We think the US consumer is one of the bright spots in the global economy. Most have worked to repair balance sheets. Housing and the job market have improved. Gas prices are down. Over time we have investment in a number of retail/consumer companies that have grown by acquiring products from larger companies and are adept at acquiring consumer brands, reinvigorating sales, and cutting costs.
One other focus has been avoiding materials, energy, and consumer discretionary companies where a large portion of the revenue is coming from overseas. This has been especially true as China decelerated.
Can you describe the process you use to find stocks for this portfolio?
We believe value and growth are not mutually exclusive. As value investors, the price we pay is important, but we are very selective seeking to invest in companies with solid earnings and growth. We seek high profit margins, returns on equity, and growth rates, but we don't forget valuations to find those.
We also seek to discover unanticipated earnings growth, and we need a catalyst in the near term – a predictable surprise that can allow a company to defy expectations such as rising commodity prices, changes in regulation, a restructuring, or debt pay down. Mid caps can come in as a new opportunity in this way, or we can hold on to a small cap that has grown.
What is your typical holding period and what triggers you to sell a stock?
In general, we expect turnover in the fund to be 25 to 40%, meaning we would hold stocks 2 to 4 years on average. We may sell for a variety of reasons including when a company's valuation exceeds our price target. Other reasons may include a change in our macro outlook, deteriorating company fundamentals or for portfolio diversification.
Are you finding any values in the energy patch?
In our view, it is still too early, We are keeping a close eye on global growth. We'd like to see stabilization in the global economy, particularly in China, before making new investments in the energy space.
About Baird Funds
The Baird Funds are a family of fixed income and equity mutual funds including Baird Ultra Short Term Bond, Baird Short Term Bond, Baird Short Term Municipal Bond Fund, Baird Intermediate Bond, Baird Quality Intermediate Bond Fund, Core Intermediate Municipal Bond, Baird Aggregate Bond, Baird Core Plus, Baird Small Cap Value, Baird Small Mid Cap Value, Baird Mid Cap and Baird Large Cap.
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 3,200 associates serving the needs on individual, corporate, institutional and municipal clients. Baird has $152 billion in client assets. Committed to being a great place to work, Baird ranked No. 5 on FORTUNE's 100 Best Companies to Work For in 2015 – its 12th 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 investment banking and private equity operations. For more information, please visit Baird's Web site at www.rwbaird.com.
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 and summary prospectus. For a prospectus or summary prospectus contact Baird Funds directly at 800-444-9102 or contact your Baird Financial Advisor. Please read the prospectus or summary prospectus carefully before investing.
There is no guarantee that the strategy of the fund will be profitable or protect against loss. The fund invests in the stocks of small- and mid-capitalization companies. These companies often are more volatile, have fewer resources to weather adverse economic or market conditions and generally face greater risks than large-cap companies.
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