Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Kayne Anderson Rudnick Investment Management — Q2 2015 Earnings Presentation
26 slides from Virtus Investment Partners's earnings presentation, Sep 5, 2015
Slide 1: Small Cap Sustainable Growth Portfolio
Small Cap Sustainable Growth Portfolio Managed Accounts Second Quarter 2015 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 14 Av
Slide 3: Small Cap Sustainable Growth Team
Small Cap Sustainable Growth Team Portfolio Manager/Analysts Responsibility Research Experience Years with KAR Douglas S. Foreman, CFA Chief Investment Officer 29 Years 4 Years Portfolio Manager & Senior Research Analyst Todd Beiley, CFA 16 Years 13 Years Sector Coverage: Financials and Producer Dur
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 Sustainable Growth Equity Competitive Advantage Types of High-Quality Business Models Brand Franchise • Brand Franchise • High Customer Switching Costs High Customer • Network Effect Switching Costs • Route Density • Scale/Cost Advantage Network Effect The securities
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® Growth
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 Sustainable Growth Equity — As of June 30, 2015 KAR Russell 2000® Small Cap Growth Index Sustainable Growth Quality Return on Equity—Past 5 Years 19.3% 13.9% In a market of average businesses, w
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 Sustainable Growth Equity As of June 30, 2015 KAR Underweight/Overweight (%) Small Cap Russell 2000® Sustainable Growth Growth Index Sectors (%) (%) Financial Services 12.0 Financial Services 21.0 9.0 Consumer Discretionary 3.9 Consumer Discretionary 23.4 19.5 Producer
Slide 17: Conviction-Driven Investing Provides Opportunities for Excess Return
Conviction-Driven Investing Provides Opportunities for Excess Return U.S. Small Cap Sustainable Growth Equity — As of June 30, 2015 % of Top 10 Holdings Russell Sector Portfolio MarketAxess Holdings Financial Services 6.1 Sirona Dental Systems Health Care 5.9 NVE Technology 5.5 Chefs’ Warehouse Cons
Slide 18: Strong Risk-Adjusted Returns
Strong Risk-Adjusted Returns U.S. Small Cap Sustainable Growth Equity Periods Ending June 30, 2015 Meaningful Excess Return with Lower Volatility Strong Risk-Adjusted Performance Metrics Annualized Since Inception* Annualized Since Inception* 12% KAR Small Cap Russell 2000® Summary Statistics Annual
Slide 19: Peer Comparison: Quartile Ranking
Peer Comparison U.S. Small Cap Sustainable Growth Equity Five Years ending June 30, 2015 Quartile Ranking Alpha Sharpe Annualized Beta Downside Ratio Standard Capture % Deviation KAR Small Cap Sustainable Growth Russell 2000® Growth Index Small Cap Growth Universe This material is deemed supplementa
Slide 20: Returns
Returns U.S. Small Cap Sustainable Growth Equity Annualized Performance Calendar Year Performance Periods Gross Net Index Excess Periods Net Index Excess Gross Ending Return Ending Return (%) (%) (%) (%) (%) (%) 6/30/15 (bps) 12/31 (bps) 1 Year 14.73 12.32 12.34 239 2014 5.16 3.19 5.60 (44) 3 Years
Slide 21: Biographies
Biographies Small Cap Sustainable Growth 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 p
Slide 22: Biographies
Biographies Small Cap Sustainable Growth 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 sector
Slide 23: Biographies
Biographies Small Cap Sustainable Growth 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 consume
Slide 24: 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 34 years of experience in the Mr. Foreman h
Slide 25: 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 26: Disclosure
Disclosure U.S. Small Cap Sustainable Growth 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 Manage
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