Domestic Equities

SMID Cap

A Differentiated Approach to ROIC SMID Cap Investing

Our experienced SMID Cap investment team is driven by the belief that Return on Invested Capital (ROIC) and its byproduct, free cash flow, are the most important drivers of long-term outperformance in the small- and mid-capitalization universe. The team seeks to invest in niche market companies that have defendable competitive advantages and exhibit high or improving ROIC levels. Niche markets and defendable competitive advantages are key to sustaining high or improving ROIC levels, all of which lead to compounding growth in free cash flow and ultimately, an increase in equity value.

Investment Philosophy

Our SMID Cap philosophy is based on four key pillars that, when combined, are designed to generate excess returns. We seek companies that (1) generate high or improving levels of ROIC, (2) serve niche markets with defendable competitive advantages, (3) are guided by strong management teams, and (4) trade at attractive reward-to-risk ratios. Companies are analyzed for Environmental, Social and Governance (ESG) factors to better understand the management team’s goals before being selected for further due diligence.

Strategy Description

The strategy blends value-oriented, improving ROIC companies with growth-oriented, high ROIC companies. The strategy targets companies under $15 billion in market cap, typically holds between 70 to 85 companies, is well-diversified across sectors, and generates moderate turnover. We integrate Environmental, Social and Governance factors into our fundamental research process.

Approach

Return On Invested Capital (ROIC) Focus

Takes a blended approach by focusing on high ROIC companies within the top two quintiles in the Russell 2500® Index and improving ROIC companies that have catalysts to improve the return level of the business. High and improving ROIC companies have outperformed the index over the long term.1

Niche Markets with Defendable Competitive Advantages

Focuses on companies that target smaller overall markets where they can achieve high market share among a smaller competitive field. Seeks competitive advantages in the form of brands, data, economies of scale, people, patents, specialized processes, or regulations.

Identifying Strong Management Teams

Seeks companies with management teams that are focused on sustainable and/or improving ROIC. Our proprietary ROIC dashboard helps assess a management team's impact on the business and opportunities for ROIC improvement beyond looking at just the income statement.

Assessing an Attractive Risk/Reward Ratio

Seeks a 3:1 upside-to-downside (reward-to-risk) ratio at the initiation of a position. The upside and downside for each stock is arrived at by performing various scenario and sensitivity analyses. After a position is initiated, the ratio is continually monitored and updated.

Portfolio Managers

Jeffrey C. Paulis, CFA

Senior Portfolio Manager

READ BIO >

Zachary T. Rosenstock, CFA

Senior Equity Analyst, Assistant Portfolio Manager

READ BIO >

Investment Vehicles

Separate Account

CIT

Literature

Recognitions

SMID Cap Manager of the Decade, Small-Mid Core Universe

On 2/21/23 SBH SMID Cap strategy was awarded the Zephyr PSN Top Guns Manager of the Decade Award for the 10-year period ending 12/31/22. You can find more information about the PSN Top Guns Award here. Segall Bryant & Hamill did not pay to participate in the PSN Top Guns Awards.

PSN Top Guns Award, Manager of the Decade Criteria (Small-Mid Core Universe): The PSN universes were created using the information collected through the PSN investment manager questionnaire and use only gross of fee returns. Mutual fund and commingled fund products are not included in the universe.  PSN Top Guns investment managers must claim that they are GIPS compliant. Products must have an R-squared of 0.80 or greater relative to the style benchmark for the 10-year period ending 12/31/22. Moreover, products must have returns greater than the style benchmark for the 10-year period ending 12/31/22 and also standard deviation less than the style benchmark for the 10-year period ending 12/31/22. At this point, the top 10 performers for the latest 10-year period ending 12/31/22 become the PSN Top Guns Manager of the Decade.

     

Related Insights

Explore the views of our thought leaders on related topics.

Contact an Advisor Solutions team member to learn more

1Source: Furey Research Partners, FactSet. Data as of 03.31.22.

CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

All opinions expressed in this presentation are solely the opinions of Segall Bryant & Hamill. You should not treat any opinion expressed as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of the manager’s opinions. The opinions expressed are based upon information the manager considers reliable, but completeness or accuracy is not warranted, and it should not be relied upon as such. Market conditions are subject to change at any time, and no forecast can be guaranteed. Any and all information perceived from this presentation does not constitute financial, legal, tax or other professional advice and is not intended as a substitute for consultation with a qualified professional. The manager’s statements and opinions are subject to change without notice, and Segall Bryant & Hamill is not under any obligation to update or correct any information provided in this presentation.

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