2019 Asset Manager Awards: Baird Mid-Cap Growth Strategy

Envestnet uncovers the portfolios that outperform in different environments.

Ken Hemauer Title: Senior Portfolio Manager Years with present firm: 25 Years in financial services: 25 Investment/asset class focus: Mid Cap US Equity:

Asset Management Firm: Baird Equity Asset Management Firm’s headquarters: Milwaukee Year firm was founded: 1971 Number of employees and/or partners: 39 Assets under management/advisement as of Dec. 31, 2018: $4.3 billion

From more than 70 candidates, the Baird Mid-Cap Growth strategy won the Asset Manager Award for its stellar performance in 2018. As Envestnet analysts explain, “Although each manager has favorable characteristics in regard to their process, team and firm, we believe that the Baird Mid-Cap Growth strategy did a superior job in navigating the choppy waters of 2018.”

The company and strategy has been around 25 years, says Ken Hemauer, Baird senior portfolio manager and managing director. Chuck Severson has been the lead portfolio manager during that time. “That makes it unique and gives [the strategy] a perspective that really helps us as we navigate the ups and downs of the market,” Hemauer adds.

The strategy focuses on long-term, high quality mid-cap growth investments. “[We] find really good businesses and, [understanding] that it’s not a straight line in this industry — there’s ups and down in the quarters — but over a longer period of time [and] cycle, these companies can outperform.”

The strategy was down 80 basis points during 2018, Envestnet notes, but that’s compared to a negative 4.75% for the Russell Mid Cap Growth Index. Further, the strategy has been able to protect capital on the downside (with 78% downside-capture ratio since its inception), which stood out during the extreme drawdown of last year’s fourth quarter (-15.42% vs -15.99% for the index).

“When looking at performance attribution in 2018, the majority of outperformance was driven through stock selection rather than sector allocation, which is what we like to see with active managers,” according the Envestnet’s analysts.

For Baird, “The way we manage money and the way we’ve always structured the portfolio is to have representation and diversification across sectors,” Hemauer explains. “So we’re not going to swing the portfolio. We’ll adjust it as we see things changing.”

Furthermore, the team is “not afraid of tough markets,” according to the portfolio manager. “In the history of the [strategy], there have been eight down markets, and we’ve been able to outperform seven times. We think that’s a function of the way we structure the portfolio and really just the core philosophy of owning really good, high quality businesses.”

In looking at employees’ and/or portfolio managers’ investments in the company, Baird does not disappoint. The firm is employee owned, and “just as important, [our portfolio managers] are invested alongside our clients in the products that we manage,” Hemauer says.

In addition, the firm’s investment teams have a flat structure. “We want portfolio managers and analysts to all be doing the day-to-day research work on companies, and everyone has an ability to influence the results,” he explains.

As for winning the award, “It is a tough business. There are a lot of great firms. Envestnet gets to work with and look at a lot of managers,” Hemauer says, “so to [win the award] is a real honor for the team.”

Videos of the award winners can be viewed here:

Profiles of the other individual award winners are found here:

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