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.

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.

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 3/31/2019
(Returns for periods of less than 1-yr are not annualized)


QTD  YTD 1YR 3YR 5YR 10YR
Mid Cap Growth - Gross 21.50%  21.50% 17.03% 19.44% 11.71% 18.73%
Mid Cap Growth - Net 21.24%  21.24% 16.04% 18.43% 10.76% 17.73%
Russell Midcap Growth Index 19.62%  19.62% 11.51% 15.06% 10.89% 17.60%

Calendar Year Returns1,2

  Mid Cap Growth Gross Mid Cap Growth Net Russell Midcap Growth Index
2018 1.21%  0.35%  -4.75% 
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%

1Mid Cap Growth composite is comprised of 8 accounts that had $6,742.3 million in total assets as of 3/31/19. • 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 January 1, 2019 through March 31, 2019.

Data as of 3/31/2019

10 Largest Holdings

as a % of total assets

CoStar Group, Inc. 3.41%
Chipotle Mexican Grill Class A
3.26%
Zoetis, Inc.
2.79%
Tractor Supply Co. 2.73%
Electronic Arts, Inc.
2.59%
ServiceNow, Inc. 2.50%
MercadoLibre, Inc. 2.25%
Keysight Technologies, Inc. 2.25%
Ulta Beauty, Inc.
2.21%
Guidewire Software, Inc. 2.10%

Sector Diversification

as a % of equity assets

Information Technology
25.68%
Consumer Discretionary 24.06%
Industrials 17.95%
Health Care 17.34%
Financials 5.48%
Materials 3.59%
Communication Services
3.22%
Consumer Staples  2.67%

Composite Composition1

Domestic Common Stock 93.84%
Foreign Common Stock 3.62%
Cash and Cash Equivalents 2.54%

Composite Total Assets1

Assets ($M) $6,742.3
Number of Accounts 8

Supplemental data: The Mid Cap Growth holdings and sector diversification data shown are 1 of the 8 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 8 accounts that had $6,742.3 million in total assets as of 3/31/19. • 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 January 1, 2019 through March 31, 2019.

As of 3/31/2019

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

Market Update

Mid-cap growth stocks, as measured by the Russell Midcap Growth Index (strategy’s benchmark), enjoyed the strongest returns across the domestic equity spectrum in first quarter 2019, with a return of 19.6%, after falling 16% in fourth quarter 2018. This return ranked as number five among the top quarterly returns for the index over the past 20 years, showing a significant rebound since the end of 2018.

As the market rebounded from the sell-off late last year, all sectors within the index posted positive returns. Information Technology, Real Estate, Industrials, Energy and Health Care were the top five contributing sectors. Energy, in particular, had a strong rebound from worst performing sector in fourth quarter 2018 to a top five performing sector in first quarter 2019, although the sector’s relatively small exposure within the index keeps its contribution to the overall return relatively small.

The market’s rebound appears to have come from a more dovish Federal Reserve (Fed) and the announcement that it was pausing interest rate hikes; hopes for governmental stimulus in China coupled with positive news from the Trump Administration on the potential for a trade deal; and indicators that global growth could be nearing the bottom of deceleration. The U.S. economy appears resilient at this point when compared to the recent shocks, whether real or perceived, that are being thrown its way.

Portfolio Review

The strategy had a positive double-digit absolute return for the quarter, outperforming its benchmark. From a sector perspective, the strategy benefited from relative outperformance in Consumer Discretionary, Communication Services, Industrials and Information Technology.

Consumer Discretionary was a significant overweight in the strategy and the sector benefited from solid stock selection.

Within Communication Services, one holding had an extremely positive streaming platform game launch during the quarter. The game had more than 25 million players within the first week, which compared quite favorably to similar competitors’ offerings. We have held this name in the strategy for a long time and we still believe strongly in the company’s fundamentals and growth prospects.

Our Industrials exposure was a slight overweight in the quarter that benefited from several names. Information Technology was underweight the benchmark in the quarter. While the allocation affect was a slight negative, stock selection more than offset the underweight drag of the sector on the strategy.

Health Care hurt relative performance during quarter due to the strategy’s underweight position in biotechnology, a strong performing sector for the index.

Financials was also a detractor to performance due to the strategy’s capital markets exposure and disappointing performance by a key holding in the sector. During the quarter, the performance of the holding referenced was disappointing as the collapse of volatility impacted the volume trends following a very strong fourth quarter in 2018. We sold out of the stock during the quarter because it had graduated out of the mid-cap space.

Our cash exposure, while at the low end of our typical range, was still a drag on performance. Also, our small options exposure in the form of protective puts detracted a small amount from performance on the quarter. (A put gives the owner the right, but not obligation, to sell a specified amount of an underlying asset at a set price within a specified time.)

Outlook

The market’s temperament changed dramatically between fourth quarter 2018 and the end of first quarter 2019. Concerns about higher interest rates and worldwide trade wars were largely put to bed, with the Fed halting talk of rate hikes for 2019 and much rhetoric around a resolution, albeit on the horizon, to the China/U.S. trade wars. Near term confidence in the economy and corporate profits became in vogue again in the quarter, with a strong risk trade presenting itself in the markets.

While the strategy represents an economically constructive point of view, our approach is essentially balanced based on stock selection as opposed to overt sector allocations. The strategy continues to express a more economically constructive and optimistic view, with a more assertive pro-growth, less defensive stance.

We are currently overweight the Consumer Discretionary, Health Care and Industrials sectors. We are underweight the Information Technology sector but still have a healthy exposure. We are also underweight the Consumer Staples sector. We are underweight Materials and have no exposure to the Real Estate and Energy sectors, which represent a combined 3.7% of the benchmark.

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 March 31, 2019 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