Institutional Strategies

Mid Cap Growth

Strategy focuses on mid-capitalization U.S. companies with large cap potential that demonstrate profitability, balance-sheet strength and sustainable earnings growth. Seeks quality growth opportunities in three categories; Greenfield, Stable and Unrecognized Growth.

Our Mid Cap Growth philosophy is based on a belief that high quality growth companies that have sound capital structures and attractive valuations will provide significant opportunities for outperformance. We believe the market will generally apply a growth rate fade factor that will overestimate the deceleration in future growth over a 3-5 year time horizon. It is this market inefficiency that the strategy attempts to isolate and generate alpha.

Other tenets of the Mid Cap Growth philosophy are:

  • Quality growth defined as profitable growth
  • Emphasis on valuation
  • Seek to be early in recognizing growth potential
  • Utilize a medium to long term mindset
  • Avoid a “benchmark driven” approach to portfolio construction
  • Bottom-up stock selection as primary source of value added

Investment Process

Initial Universe - Idea Generation

Screen for:

  • Profitability metrics
  • 12 month cash flow trends
  • Valuation metrics
  • Estimate revisions

Qualitative Sources:

  • Interaction and discussion with Ivy Investments team resources
  • Meet with companies’ management
  • Quarterly earnings reports and calls
  • Conferences, research reports

Investment Universe - Company Selection

Primary Criteria:

  • Sustainable growth
  • Durable financials
  • Effective management

Conditional Criteria:

  • Valuation
  • Cash flow trends
  • Informational edge
  • Top-down factors

Mid Cap Growth Portfolio - Quality Growth Opportunities

  • Greenfield Growth – Innovators, Repeat Revenues, Global Reach, Long Runways for Growth
  • Stable Growth – Durable business models producing moderated, yet solid revenue and earnings growth
  • Unrecognized Growth – Undiscovered or interrupted growth, Low institutional following, Contrarian holdings, Seeking early ownership

Kimberly A. Scott, CFA

Senior Vice President, Portfolio Manager

Ms. Scott is co-portfolio manager of the firm's Mid Cap Growth investment strategy and has served as portfolio manager of the strategy since 2001. She has been co-portfolio manager of the firm's Ivy Mid Cap Income Opportunities Fund since 2014. She joined the organization in 1999 as an equity investment analyst, covering industries in the consumer discretionary, consumer staples and information technology sectors.

Ms. Scott's lengthy background in fundamental research contributed to her development of the firm's Mid Cap Growth philosophy in 2001. Her extensive experience at various levels of fundamental research in positions throughout her career date to 1987 with the following companies:  Bartlett & Company, NBD Bank, Johnson Investment Counsel, Inc. and the University of Cincinnati Medical Center. Ms. Scott provided sector coverage for consumer non-durables, technology, retail, food and beverage, and tobacco.

Ms. Scott earned an MBA in Finance from the University of Cincinnati and a BS in Microbiology from the University of Kansas. She is a CFA charterholder.

Nathan A. Brown, CFA

Senior Vice President, Portfolio Manager

Mr. Brown is co-portfolio manager of the firm's Mid Cap Growth investment strategy, appointed to this role in 2016. He had served as assistant portfolio manager to the strategy since 2011. He has been co-portfolio manager of the firm's Ivy Mid Cap Income Opportunities Fund since 2014. He joined the organization in 2003 as an equity investment analyst, covering industries in the consumer discretionary, consumer staples and industrials sectors.

Prior to joining the firm, Mr. Brown interned with Morgan Keegan. From 1999 to 2001 he completed five rotations in General Electric-Aircraft Engine’s financial management program.

Mr. Brown earned an MBA with an emphasis in Finance from Vanderbilt University and a BBA from the University of Iowa. He is a CFA charterholder.

3 years, 5 years, 10 years annualized. Returns are presented on a dollar-weighted basis and may be impacted by ongoing market volatility. Past performance is no guarantee of future results. Please inquire for more current performance information.

Total Returns1,2,3

Average Annual Total Returns as of 12/31/2017
(Returns for periods of less than 1-yr are not annualized)


QTD  YTD 1YR 3YR 5YR 10YR
Mid Cap Growth - Gross 7.46%  28.48% 28.48% 9.56% 13.58% 10.77%
Mid Cap Growth - Net 7.23%  27.39% 27.39% 8.63% 12.62% 9.83%
Russell Midcap Growth Index 6.81%  25.27% 25.27% 10.30% 15.30% 9.10%

Calendar Year Returns1,2

  Mid Cap Growth Gross Mid Cap Growth Net Russell Midcap Growth Index
2017 28.48%  27.39%  25.27%
2016 7.50%  6.59%  7.33%
2015 -4.79% -5.60% -0.20%
2014 9.19% 8.26% 11.90%
2013 31.64% 30.52% 35.74%
2012 14.40% 13.43% 15.81%
2011 0.77% -0.08% -1.65%
2010 33.20% 32.07% 26.38%
2009 51.01% 49.73% 46.29%
2008 -36.55% -37.09% -44.32%

1Mid Cap Growth composite is comprised of 9 accounts that had $5,743.7 million in total assets as of 12/31/17. • Returns reflect the reinvestment of all dividends and other earnings. Portfolio returns are net of all foreign reclaimable and nonreclaimable withholding taxes, if applicable. Withholding taxes are recognized on an accrual basis or cash basis depending on client and/or account type. Additional information regarding treatment of withholding taxes is available upon request. Returns shown gross of fees reflect the deduction of commissions paid, but are gross of all other expenses. Net-of-fees returns are calculated by deducting the highest applicable advisory fee from the monthly gross composite return. The actual fees paid by a client may vary based on assets under management and other factors. A client’s return will be reduced by investment management fees and other expenses incurred in the management of a client’s account. Investment advisory fees are described in Part 2 of the ADV. Investment returns and the actual value of each client account will fluctuate, and at any given time an account could be worth more or less than the amount invested. • The benchmark selected for the composite is intended to provide a method to compare the composite’s performance to an index including securities that are generally similar to those that are included in the composite. However, composite holdings (and, accordingly, risk and volatility) may differ significantly from the securities tracked by its benchmark.

2Russell Investment Group is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Ivy Investment Management Company (IICO). Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in IICO’s presentation thereof.

3QTD return from October 1, 2017 through December 31, 2017.

Data as of 12/31/2017

10 Largest Holdings

as a % of total assets

Fastenal Co. 3.63%
Intuitive Surgical, Inc. 3.11%
Polaris Industries, Inc. 2.93%
CoStar Group, Inc. 2.93%
Zoetis, Inc. 2.93%
Tractor Supply Co. 2.82%
GrubHub, Inc. 2.54%
MercadoLibre, Inc. 2.53%
CME Group, Inc. 2.50%
Electronic Arts, Inc. 2.42%

Sector Diversification

as a % of equity assets

Information Technology 25.61%
Consumer Discretionary 20.54%
Industrials 18.15%
Health Care 16.08%
Financials 8.69%
Consumer Staples 5.82%
Materials 2.68%
Energy 2.43%

Composite Composition1

Domestic Common Stock 94.53%
Foreign Common Stock 4.03%
Cash and Cash Equivalents 1.44%

Composite Total Assets1

Assets ($M) $5,743.7
Number of Accounts 9

Supplemental data: The Mid Cap Growth holdings and sector diversification data shown are 1 of the 9 composite accounts without client specific investment restrictions and may not be reflective of the Mid Cap Growth composite as a whole or of any other Mid Cap Growth account currently, or in the future, included in such composite. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable.

1Mid Cap Growth composite is comprised of 9 accounts that had $5,743.7 million in total assets as of 12/31/17. • Returns reflect the reinvestment of all dividends and other earnings. Portfolio returns are net of all foreign reclaimable and nonreclaimable withholding taxes, if applicable. Withholding taxes are recognized on an accrual basis or cash basis depending on client and/or account type. Additional information regarding treatment of withholding taxes is available upon request. Returns shown gross of fees reflect the deduction of commissions paid, but are gross of all other expenses. Net-of-fees returns are calculated by deducting the highest applicable advisory fee from the monthly gross composite return. The actual fees paid by a client may vary based on assets under management and other factors. A client’s return will be reduced by investment management fees and other expenses incurred in the management of a client’s account. Investment advisory fees are described in Part 2 of the ADV. Investment returns and the actual value of each client account will fluctuate, and at any given time an account could be worth more or less than the amount invested. • The benchmark selected for the composite is intended to provide a method to compare the composite’s performance to an index including securities that are generally similar to those that are included in the composite. However, composite holdings (and, accordingly, risk and volatility) may differ significantly from the securities tracked by its benchmark.

2Russell Investment Group is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Ivy Investment Management Company (IICO). Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in IICO’s presentation thereof.

3QTD return from October 1, 2017 through December 31, 2017.

As of 12/31/2017

Portfolio Managers:
Kimberly A. Scott, CFA
Nathan A. Brown, CFA

Portfolio Review

The Strategy outperformed its benchmark for the period ended Dec. 31, 2017. The Strategy’s consumer staples, consumer discretionary and technology sectors delivered particularly strong absolute and relative returns for the quarter. Our consumer discretionary names made the strongest positive contribution to performance in the quarter. Many companies within this sector began to find their footing again late in 2017 after a number of difficult years when the internet and e-commerce began in earnest to impact their business models. While many stocks in our consumer discretionary exposure continued to struggle into the end of the year, we saw strength in many names, which lead to better performance than the sector in the index. Many forces have come together to improve the picture for the stocks of consumer discretionary companies, including low valuations, a strong U.S. economy, and progress for some in strengthening business models to compete in a fast-changing environment. We have divested a number of companies where we think competitiveness is challenged, and added or continue to hold a group of names that we see as differentiated and able to function competitively to serve consumers. The Strategy is now overweight the consumer discretionary sector, after being below index weight for much of 2017. Our consumer staples stocks made a strong positive contribution to performance, with our names outpacing the index. Our technology names continued a string of strong positive relative performance in the fourth quarter, having outperformed in each quarter of 2017. We were underweight this underperforming sector last quarter, but stock picking drove performance. Our financials sector made the largest negative contribution to the relative return in the quarter. The Strategy significantly underperformed this outperforming group. Our exposure to two names was the biggest source of underperformance. The Strategy was also underweight the strongly performing capital markets stocks, an opportunity cost for us in the quarter. Our industrials exposure also contributed negatively to relative performance. Our names outperformed the index, but underperformed the industrials group within the index. We were overweight this outperforming group, which was a small positive offset.

Outlook

The market’s strength in 2017 was impressive, and the returns consistent, with gains in every month of the year. Strong corporate earnings borne of the ongoing recovery post the energy sector-led downturn in 2014 and 2015, buoyant business and consumer confidence, and economic growth worldwide underpinned the market’s move. Tax reform was the turbo booster. We see no near term change in the potential for these same factors to drive positive returns in the market as we begin 2018. Economies are still growing synchronously around the world, businesses are optimistic, which usually feeds on itself in terms of generating more activity, and consumers are employed and enjoying wage gains. A corporate profit picture that is already firm will be enhanced by the tax legislation passed by the U.S. Congress at the end of 2017. We expect the market to continue to move higher, but we also understand that we must consider valuation levels as we invest the portfolio, and also monitor interest rates, yield spreads and credit conditions for clues about excesses or concerns that can build in the economy and potentially impact the market as the business cycle progresses.

The Strategy continues to express a more economically constructive and optimistic view, with a more assertive pro-growth, less defensive stance – although slightly less so than earlier in 2017. We are overweight the consumer discretionary, financials and industrials sectors. We still have a healthy exposure to technology, but have moved to an underweight position, having seen valuations increase dramatically in this sector, and enjoyed significant appreciation in our names. We are also overweight the consumer staples and health care sectors, more from a stock selection standpoint, rather than a defensive posture, as there are names in these groups where we expect solid growth and stock appreciation over time. We are very slightly underweight energy, underweight materials, and, as mentioned, underweight technology, although this weight could increase once again given the many interesting investment opportunities across that sector. We have no exposure to the telecommunications, real estate and utilities sector, which represent a combined 3.3% of the index. While our portfolio represents an economically constructive point of view, our approach is essentially balanced based on stock selection as opposed to overt sector allocations. From a broader macroeconomic factor perspective, we expect a stable-to-rising rate environment to be generally positive for our approach, related to our focus on very profitable business models and sound capital structures. The time of quantitative easing was a challenge to our returns, as lower and lower interest rates played to the benefit of the stocks of companies with lesser quality business models and/or capital structures. We expect the change in trend to favor our investment style.

The opinions expressed are those of the portfolio manager(s) and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through December 31, 2017 and are subject to change due to market conditions or other factors. Any mention of investment performance refers to gross-of-fees performance, unless otherwise noted.

Share this page:

Key Features

Composite Performance History Since 1/1/2005 
Benchmark Russell Midcap Growth Index
Style Fundamental, Growth
Target Alpha 300 bps above Index
Over full market cycles (3-5 years)
Peer Universe U.S. Mid Cap Growth Equity
Typical Tracking Error 300-500 bps
Holdings Range 60-70
Max Position Size 5%
Sectors +/- 10% of the Index weight
Max exposure 30% to any one sector
Proprietary Growth Spectrum Diversification across three growth buckets: Greenfield, Stable and Unrecognized Growth
Investment Vehicles Institutional Separate Account
Collective Investment Trust
U.S. Mutual Fund: Institutional Share Class
Variable Insurance Portfolio
Non-U.S.: UCITS