Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Kayne Anderson Rudnick Investment Management — Q2 2015 Earnings Presentation
27 slides from Virtus Investment Partners's earnings presentation, Sep 5, 2015
Slide 1: Small Cap Quality Value Portfolio
Small Cap Quality Value 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 Quality Value Team
Small Cap Quality Value 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 Julie Kutasov 14 Years 14 Years Sector Coverage: Energy and Financials Portfolio Man
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: How Are We Different?
How Are We Different? We Manage Risk and Generate Returns Differently 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
Slide 7: Source of Quality
Source of Quality U.S. Small Cap Quality Value 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 pres
Slide 8: 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 8
Slide 9: 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 10: Investment Process: Proprietary Fundamental Research
2 Investment Process Proprietary Fundamental Research Research analysts and portfolio managers work side-by-side to develop an information advantage Qualitative Analysis Financial Analysis Purpose: Evaluate sustainability of business model Purpose: Evaluate basis for superior profitability, and asse
Slide 11: 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® Value
Slide 12: 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 • Rebalance within sector controls Diversification Requirements • Improve industry mix • Our holdi
Slide 13: 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 14: Portfolio Characteristics
Portfolio Characteristics Higher Quality, Stronger, More Consistent Growth, & Better Value U.S. Small Cap Quality Value Equity — As of June 30, 2015 KAR Russell 2000® Small Cap Value Index Quality Value Quality In a market of average businesses, we own Return on Equity—Past 5 Years 22.1% 7.5% protec
Slide 15: Summary of Key Differentiators
Summary of Key Differentiators • We believe that purchasing high-quality businesses with competitive protections at Philosophy attractive valuations will achieve excess returns over a complete market cycle • A “business analyst” approach with a long-term perspective Process • Extensive fundamental r
Slide 16: Appendix
Appendix I. Portfolio Data II. Biographies III. Representative Client List IV. Disclosure 16
Slide 17: Sector Weights
Sector Weights U.S. Small Cap Quality Value Equity As of June 30, 2015 KAR Small Cap Russell 2000® Underweight/Overweight (%) Quality Value Value Index Sectors (%) (%) Producer Durables 21.1 13.2 Producer Durables 7.9 Consumer Staples 7.4 2.5 Consumer Staples 4.9 Materials & Processing 6.6 4.8 Mater
Slide 18: Conviction-Driven Investing Provides Opportunities for Excess Return
Conviction-Driven Investing Provides Opportunities for Excess Return U.S. Small Cap Quality Value Equity — As of June 30, 2015 % of Top 10 Holdings Russell Sector Portfolio CEB Producer Durables 5.1 Cheesecake Factory Consumer Discretionary 4.6 Jack Henry & Associates Financial Services 4.4 Landstar
Slide 19: Performance Statistics
Performance Statistics U.S. Small Cap Quality Value Equity Periods Ending June 30, 2015 Strong Risk-Adjusted Performance Metrics Annualized Since Inception* Semi-Standard Summary Statistics Alpha Sharpe Ratio Standard Deviation Beta Tracking Error Deviation KAR Small Cap Quality Value 3.93 0.49 18.9
Slide 20: Quartile Ranking
Peer Comparison U.S. Small Cap Quality Value Equity Inception* to June 30, 2015 Quartile Ranking Annualized Alpha Sharpe Sortino Annualized Beta Downside Return Ratio Ratio Standard Capture % Deviation KAR Small Cap Quality Value Russell 2000® Value Index Small Cap Value Universe *Actual inception d
Slide 21: Returns
Returns U.S. Small Cap Quality Value 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 6.40 4.40 0.78 562 2014 2.51 0.85 4.22 (171) 3 Years 15.36 1
Slide 22: Biographies
Biographies Small Cap Quality Value Team Douglas S. Foreman, CFA Julie Kutasov 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 energy and financials se
Slide 23: Biographies
Biographies Small Cap Quality Value Team Todd Beiley, CFA Jon K. Christensen, CFA Senior Research Analyst with primary research Senior Research Analyst with primary research responsibilities for the small and mid-capitalization responsibilities for the small and mid-capitalization health- financials
Slide 24: Biographies
Biographies Small Cap Quality Value 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-dis
Slide 25: Biographies
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 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 Quality Value 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,
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