Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Kayne Anderson Rudnick Investment Management — Q1 2016 Earnings Presentation
27 slides from Virtus Investment Partners's earnings presentation, April 2016
Slide 1: Small Cap Core Portfolio
Small Cap Core Portfolio Managed Accounts First Quarter 2016 A Focus on Quality Since 1984 1800 Avenue of the Stars, Second Floor | Los Angeles, California 90067 T 800.231.7414 | kayne.com
Slide 2: Firm Overview
Firm Overview Profile At a Glance • Organization originally established to manage founder capital Year Founded 1984 Headquarters Los Angeles, CA • Boutique firm specializing in small cap equity strategies with AUM $9.9 billion over three decades of experience Number of Investment Professionals 15 Av
Slide 3: Small Cap Core Team
Small Cap Core Team Portfolio Manager/Analysts Responsibility Research Experience Years with KAR Douglas S. Foreman, CFA Chief Investment Officer 30 Years 5 Years Portfolio Manager & Senior Research Analyst Todd Beiley, CFA 17 Years 14 Years Sector Coverage: Financials and Producer Durables Portfoli
Slide 4: Disciplined Investment Approach
Disciplined Investment Approach Investment Philosophy & Objectives Investment Philosophy • We believe that purchasing high-quality businesses with competitive protections at attractive valuations will achieve excess returns over a complete market cycle Investment Objectives • To achieve a return mea
Slide 5: Tenets of Quality
Tenets of Quality MARKET MANAGEMENT CONTROL EXCELLENCE Ability to Develop, Develop and Adhere to Nurture, Protect its Market/ Core Competencies/ Effective Competitive Disciplined Capital Allocation Differentiation HIGH QUALITY BALANCE SHEET INCOME STATEMENT STATEMENT Low Capital Intensity/ Durable E
Slide 6: Source of Quality
Source of Quality U.S. Small Cap Core Equity Competitive Advantage Types of High-Quality Business Models High Customer Switching Costs • Brand Franchise • High Customer Switching Costs Network Effect • Network Effect • Route Density • Scale/Cost Advantage Cost Advantage The securities presented on t
Slide 7: Investment Process Overview
Investment Process Overview A Business Analyst Approach 1 Development of High-Quality Universe 2 Proprietary Fundamental Research 3 Portfolio Construction & Sell Discipline 4 Portfolio Monitoring & Risk Management 7
Slide 8: Investment Process: Development of High-Quality Universe
1 Investment Process Development of High-Quality Universe We source our investment universe in a number of ways Small Cap Universe Quantitative Screens • High return on capital over a full economic cycle • Long and resilient earnings history • High return on net operating assets • Minimal debt Other
Slide 9: Investment Process: Intensive Fundamental Research
2 Investment Process Intensive Fundamental Research Research analysts and portfolio managers work together to develop in-depth business knowledge Understand link Qualitative Analysis between business Financial Analysis character and Purpose: Determine if competitive advantage exists financial charac
Slide 10: Investment Process: Portfolio Construction
3 Investment Process Portfolio Construction Investment Guidelines • Typically 25-35 holdings • Average position size is typically 3% Position Weights • Maximum initial position size is 5% (at cost) • Maximum position size is 10% (at market) • +/- 10% of the sector weights of the Russell 2000® Index,
Slide 11: Investment Process: Sell Discipline
3 Investment Process Sell Discipline Sell Discipline • Significant premium to intrinsic value Extended Valuation • Expected annual return insufficient • Better business Portfolio Upgrade • Better price Diversification Requirements • Rebalance within sector parameters • Our holding acquired Acquisiti
Slide 12: Risk Management & Portfolio Monitoring
4 Investment Process Risk Management & Portfolio Monitoring Risk Management • Focus on “high-quality” companies Investment Philosophy • Company’s “business risk” is primary risk control factor • Economic sector weights managed to within a maximum 10% variance to benchmark Portfolio Level Controls •
Slide 13: Portfolio Characteristics
Portfolio Characteristics Higher Quality, Stronger, More Consistent Growth, & Better Value U.S. Small Cap Core Equity — As of March 31, 2016 KAR Russell 2000® Small Cap Core Index Quality Return on Equity—Past 5 Years 26.0% 11.0% In a market of average businesses, we own protected proprietary busine
Slide 14: Summary of Key Differentiators
Summary of Key Differentiators KAR APPROACH CLASSIC APPROACH RISK RISK • 25-35 stock portfolio • 75 stock portfolio 3% to 10% positions in high-quality companies 1% to 2% positions • Each company has: • No stock can hurt more than 2% Minimal business risk Minimal balance sheet risk Minimal
Slide 15: Appendix
Appendix I. Portfolio Data II. Biographies III. Representative Client List IV. Disclosure 15
Slide 16: Sector Weights
Sector Weights U.S. Small Cap Core Equity As of March 31, 2016 KAR Russell 2000® Underweight/Overweight (%) Small Cap Core Index Sectors (%) (%) Producer Durables 14.7 Producer Durables 27.3 12.6 Energy 4.8 Energy 7.0 2.2 (0.7) Consumer Discretionary Consumer Discretionary 14.1 14.8 (1.2) Technology
Slide 17: Conviction-Driven Investing Provides Opportunities for Excess Return
Conviction-Driven Investing Provides Opportunities for Excess Return U.S. Small Cap Core Equity — As of March 31, 2016 % of Top 10 Holdings Russell Sector Portfolio MarketAxess Holdings Financial Services 5.2 Landstar System Producer Durables 5.2 CDW Technology 5.2 Autohome Technology 4.9 Shuttersto
Slide 18: Strong Risk-Adjusted Returns
Strong Risk-Adjusted Returns U.S. Small Cap Core Equity Periods Ending March 31, 2016 Meaningful Excess Return with Lower Volatility Strong Risk-Adjusted Performance Metrics Annualized Since Inception* Annualized Since Inception* 16% 14% Summary Statistics KAR Small Cap Core Russell 2000® Index Annu
Slide 19: Peer Comparison: Quartile Ranking
Peer Comparison U.S. Small Cap Core Equity Ten Years Ending March 31, 2016 Quartile Ranking Annualized Alpha Sharpe Sortino Annualized Beta Downside Return Ratio Ratio Standard Capture % Deviation KAR Small Cap Core Russell 2000® Index Small Cap Core Universe This material is deemed supplemental and
Slide 20: Returns
Returns U.S. Small Cap Core Equity Annualized Performance Calendar Year Performance Periods Periods Net Index Excess Gross Net Index Excess Gross Ending Return Ending Return (%) (%) (%) (%) (%) (%) 12/31 (bps) 3/31/16 (bps) 2015 2.09 0.51 (4.41) 650 1 Year 1.67 (0.23) (9.76) 1143 2014 7.31 5.57 4.89
Slide 21: Performance in Down Markets
Performance in Down Markets U.S. Small Cap Core Equity Stronger Long-Term Performance From Defensive Characteristics DRAWDOWN RECOVERY SUBSEQUENT RETURNS (%) Cumulative Recovery Period Beginning Trough Months Months Since 1 year 3 years 5 years Drawdown (%) Date KAR Small Cap Core Feb-94 Jun-94 5 (3
Slide 22: Biographies
Biographies Small Cap Core Team Douglas S. Foreman, CFA Todd Beiley, CFA Chief Investment Officer and Member of the Executive Portfolio Manager and Senior Research Analyst with Management Committee primary research responsibilities for the small and mid- capitalization financials and producer-durabl
Slide 23: Biographies
Biographies Small Cap Core Team Julie Kutasov Craig Stone Senior Research Analyst with primary research Senior Research Analyst with primary research responsibilities for the small and mid-capitalization energy responsibilities for the small and mid-capitalization and financials sectors producer-dur
Slide 24: Biographies
Biographies Small Cap Core Team Chris Benway, CFA Chris Wright, CFA Research Analyst with primary research responsibilities for Research Analyst with primary research responsibilities for the small and mid-capitalization materials and processing the small and mid-capitalization consumer-discretionar
Slide 25: Biographies: Executive Management
Biographies Executive Management Stephen A. Rigali, CFA Douglas S. Foreman, CFA Executive Vice President and Member of the Executive Chief Investment Officer and Member of the Executive Management Committee Management Committee Mr. Rigali has approximately 35 years of experience in the Mr. Foreman h
Slide 26: Representative Clients
Representative Clients Corporate Public Funds Coffman Engineers Champaign Police Dorchester Insurance Co., Ltd. City of Aurora Police Lewitt, Hackman, et al. City of Deerfield Beach Morley Group City of North Miami Tennant Company City of Sunrise Police Topa Insurance Elgin Police Pension Board Rock
Slide 27: Disclosure
Disclosure U.S. Small Cap Core Equity Kayne Anderson Rudnick Investment Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS® standards. Kayne Anderson Rudnick Investment Management, LLC has
Kayne Anderson Rudnick Investment Management — Q1 2016 Earnings Presentation on 6ix