Small-Cap Investing: Discover the Growth Potential

Transcription

1 Small-Cap Investing: Discover the Growth Potential Presented by: Brian C. Fitzsimons, CFA Partner Portfolio Manager, Analyst - WTSGX May 13, 2015 For institutional use only. Small-Cap Investing 0 Speaker Biography Brian C. Fitzsimons, CFA Partner Portfolio Manager, Analyst Brian Fitzsimons, CFA is a portfolio manager and analyst for the Westcore MIDCO Growth Fund, the Westcore Select Fund and the Westcore Small-Cap Growth Fund. He is also a portfolio manager and analyst on the Small- &MidC Mid-Cap Growth team and a partner at Denver Investments. Prior to joining the firm in 2005, Mr. Fitzsimons was with Newmont Capital Ltd. as a finance manager for one year. He also worked as an equity analyst at A.G. Edwards & Sons, Inc. for two years and Berger Financial Group for one year. Additionally, Mr. Fitzsimons worked with a professional athletic league for three years as the director of finance and controller, and with Marsico Endowment Fund as a portfolio manager. Mr. Fitzsimons received a BS from Metropolitan State College of Denver and MBA from the University of Denver. He is a CFA charterholder and a member of CFA Institute and CFA Society Colorado. For institutional use only. Small-Cap Investing 1 1

2 Small-Cap Investing Discover the growth potential 1) Overview of small-cap stocks 2) Investing in small-cap stocks 3) Generating alpha in small-cap stocks 4) Current opportunity in small-cap stocks For institutional use only. Small-Cap Investing 2 Small-Cap Investing Planning with the right tools El Capitan Yosemite National Park Tommy Caldwell & Kevin Jorgeson Free climb 3,000 foot rock formation Dec 27, 2014 Jan 14, segments Multiple year planning process and the right tools For institutional use only. Small-Cap Investing 3 2

3 Overview of Small-Cap Stocks composition Russell 2000 and Russell 2000 Growth Composition Median Number Of Ending Market Weighted Average Weighted Median Average Market Smallest Largest Market Holdings Value Market Cap Market Cap Cap Stock Stock Cap Russell ,043 $21,043,698,050 $110,869 $60,228 $21,000 $275 $647,361 $7,817 Russell ,011 $1,764,899, $1,907 $1,711 $1,046 $19 $9,750 $709 Russell 2000 Growth 1,205 $887,504,174 $2,090 $1,825 $1,137 $31 $9,750 $815 Russell ,054 $22,808,597,986 $102,438 $49,200 $7,861 $19 $647,361 $1,477 S&P $18,245,163 $125,022 $73,602 $37,553 $2,866 $647,361 $18,354 Determining Membership Russell 3000E Russell 3000 Russell Top 50 Mega Cap Russell Top 200 Russell 1000 Russell Midcap Russell 2000 Russell 2500 Russell Microcap Companies Included Companies #1 4,000 or 100% of all eligible securities Companies #1 3,000 Companies #1 50 Companies #1 200 Companies #1 1,000 Companies #201 1,000 Companies #1,001 3,000 Companies #501 3,000 Companies #2,001 4,000 Source: Morningstar Direct. As of 12/31/14. Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 4 Overview of Small-Cap Stocks ETF universe Five Largest Small-Cap ETF's by AUM Ticker Name Assets ($MM) IWM ishares Russell ,652 IJR ishares Core S&P Small-Cap 16,209 VB Vanguard Small-Cap ETF 11,188 IWO ishares Russell 2000 Growth 7,319 IWN ishares Russell 2000 Value 6,253 Five Largest Mid-Cap ETF's by AUM Ticker Name Assets ($MM) IJH ishares Core S&P Mid-Cap 25,868 MDY SPDR S&P MidCap 400 ETF 16,277 DVY ishares Select Dividend 15,018 IWR ishares Russell Mid-Cap 12,638 VO Vanguard Mid-Cap ETF 11,582 Five Largest Large-Cap ETF's byaum Ticker Name Assets ($MM) SPY SPDR S&P 500 ETF 181,930 IVV ishares Core S&P ,722 VTI Vanguard Total Stock Market ETF 55,075 QQQ PowerShares QQQ ETF 38,053 VOO Vanguard S&P 500 ETF 30,463 Source: Morningstar Direct. As of 4/2/2015. Top five ETF s in terms of assets under management. Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 5 3

4 Overview of Small-Cap Stocks Russell 2000 Growth Value Russell 2000 Growth 12/31/1999 3/31/2015 Value Source: Morningstar Direct 12/31/1999 3/31/2015. Start date of chart was 12/31/1999, just prior to previous high of the index. Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 6 Overview of Small-Cap Stocks Small-caps outperformed over time Cumulative Returns 1/1/1992 3/31/ Cumulative Returns (%) Cumulative Returns Source: Morningstar Direct. Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 7 4

5 Overview of Small-Cap Stocks Small-caps offer lower correlation to other asset classes Correlation Coefficients 1/1/1992 3/31/ Correlation Coefficients (Relative to Russell 2000 ) Correlation Coefficients Source: Morningstar Direct. Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 8 Investing in Small-Cap Stocks S&P 500 Total Return vs Russell 2000 Total Return * 10 Year Constant Intervals 12/31/ /31/2014 Gain Per Annu m (%) Standard Deviation (%) The Efficient Frontier Source: Ned Davis Research, Inc. For the period 12/31/ /31/2014. > O indicates highest Reward/Risk ratio. *Ibbotson Small Cap Total Return (prior to 1979). Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For data vendor disclaimers refer to Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 9 5

6 Investing in Small-Cap Stocks Long term: Relative performance of small-caps vs. large-caps Source: Ned Davis Research, Inc. Monthly data, 12/31/1925 3/31/2015. Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For data vendor disclaimers refer to Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 10 Investing in Small-Cap Stocks Short term: Relative performance of small-caps vs. large-caps Source: Ned Davis Research, Inc. Daily data, 1/02/1996 4/2/2015. Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For data vendor disclaimers refer to Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 11 6

7 Investing in Small-Cap Stocks Higher growth potential Historical EPS & Sales Growth 3 Year 12/31/2014 Forecast EPS Growth 1 Year 12/31/ % 12% 10% 8% 6% 4% 2% 16% 14% 12% 10% 8% 6% 4% 2% 0% Russell 1000 Russell 2000 Russell 2000 Growth Russell 3000 S&P 500 0% Russell 1000 Russell 2000 Russell 2000 Growth Russell 3000 S&P 500 Source: FactSet. Data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 12 Investing in Small-Cap Stocks Higher growth potential Source: Ned Davis Research, Inc. Monthly data, 12/31/ /31/2014. Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For data vendor disclaimers refer to Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 13 7

8 Generating Alpha in Small-Cap Stocks Stronger fund track records in small-cap funds Average % of Mutual Funds Beating the Benchmark 1/1/ /31/ % 50% 40% 54% 53% 54% 47% 49% 52% 41% 45% 39% 40% 46% 39% 46% 53% 49% 42% 30% 20% 10% 0% R2000 R2000G R2000V R2500 R2500G R2500V RMid RMidG RMidV R1000 R1000G R1000V S&P 500 R3000 R3000G R3000V Source: Morningstar Direct. Based on annual excess returns since Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 14 Generating Alpha in Small-Cap Stocks Analyst coverage by market cap Analyst Coverage by Market Cap Company Size Avg # Analyst # Companies 0 Analysts 1 Analyst % 0 anlayst % 1 anlayst >$10b % 0.00 % $5b-$10b $2b-$5b $1b-$2b $500mm-$1b <$500mm 2 2,628 1, Source: S&P Capital IQ. Data as of 12/31/2014. Data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 15 8

9 Generating Alpha in Small-Cap Stocks U.S. vs. International exposure in small-caps Source: Ned Davis Research, Inc. Yearly data, 12/31/ /31/2014. Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For data vendor disclaimers refer to Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 16 Generating Alpha in Small-Cap Stocks Cash on U.S. company balance sheets Cash on U.S. Company Balance Sheets 12/31/ /31/2014 $6,000 $5,000 $4,000 $ trillion's $3,000 $2,000 $1,000 $- 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 Source: FactSet, 12/31/ /31/2014. Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 17 9

10 Generating Alpha in Small-Cap Stocks The current M&A cycle Source: Evercore Investor Relations, Thomson Reuters; 2014 Annualized based on 11M Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 18 U.S. Merger Activity Number of M&A Deals Pre /31/2014 Percent of M&A Deals Pre /31/ % 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% % 10.00% % pre Source: S&P Capital IQ. Data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 19 10

11 Current Opportunity in Small-Cap Stocks Long term: Relative performance of small-caps vs. large-caps Source: Ned Davis Research, Inc. Monthly data, 12/31/1925 3/31/2015. Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For data vendor disclaimers refer to Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 20 Current Opportunity in Small-Cap Stocks Short term: Relative performance of small-caps vs. large-caps Source: Ned Davis Research, Inc. Daily data, 1/02/1996 4/2/2015. Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For data vendor disclaimers refer to Performance data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 21 11

12 Current Opportunity in Small-Cap Stocks Valuation Characteristics as of 12/31/2014 Dividend Beta vs P E Forecast P E Forecast P E Trailing Price Cash Price Sales X PB Value Yield S&P year 2 year 1 year Flow LTM Russell % $ $14.17 Russell % $ $15.26 Russell 2000 Growth 0.63% $ $17.81 Russell % $ $14.24 S&P % $ $14.04 Hist 5 Yr EPS Growth Hist 3 Yr EPS Growth EPS Growth EPS Growth Forecast 1 year Forecast 2 year EPS Growth 3 Year Dividend PS Growth 5 Year Hist 3 Year Sales Growth Russell % 9.55% 9.95% 20.34% 10.43% 13.55% 6.86% Russell % 10.05% 11.06% 27.11% 12.50% 8.51% 8.67% Russell 2000 Growth 13.06% 12.33% 13.45% 32.99% 15.00% 11.62% 12.59% Russell % 9.58% 10.02% 20.76% 10.50% 13.36% 6.98% S&P % 9.33% 9.63% 19.76% 10.07% 13.66% 6.57% Source: FactSet. Data quoted represents past performance and does not guarantee future results. For institutional use only. Small-Cap Investing 22 Important Disclosure Information CFA is a trademark owned by CFA Institute. RISKS: Investing in small-cap funds generally will be more volatile and loss of principal could be greater than investing in large-cap funds. Investing in foreign securities entails special risks, such as currency fluctuations and political uncertainties. An investor should consider investment objectives, risks, charges and expenses of the Fund(s) carefully before investing. This material must be accompanied or preceded by aprospectus,whichcontainsthisandotherimportant information about the Fund(s). To obtain additional copies of the prospectus, please call WEST (9378) or visit us online at Please read the prospectus carefully before investing. Westcore Funds and Powershares QQQ ETF (ticker: QQQ) are distributed by ALPS Distributors, Inc. The mountain logo together with "WestcoreFunds Denver Investments" is a registered service mark of Denver Investments. All indices are unmanaged and index performance figures do not reflect any fees, expenses or taxes. 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