Wells Capital Management
PMV Small Cap Equity
Portfolio benchmark: Russell 2000 Index | As of December 31, 2016
Investment philosophy
■
Public equity markets are fraught with emotion, in part, because
investors do not control nor do they have all the information about the
companies they invest in.
■
Successful investing in that environment is a function of conviction in
individual securities and diversification across sectors.
■
Conviction comes from an in-depth private market analysis of the
business model, key trends, and worth of an enterprise, coupled with a
pragmatic assessment of management.
Portfolio construction
Portfolios are constructed with careful attention paid towards security
weights for both buy and sell decisions.
Bottom-up stock selection with strict portfolio weights
Diversified portfolios
■
Disciplined sell decisions
■
■
Private market valuation (PMV)
The price an acquirer would pay to purchase the entire company.
■
■
The business model, management team, key trends, and worth of an
enterprise are much more stable than its associated public market
stock price.
■
On a public stock exchange, a common stock will normally trade at a
price level between 50% and 80% of its PMV.
A consistent, repeatable, and accurate private market discipline that
captures these key elements, provides the opportunity to exploit
market emotion and generate alpha.
PMV = 100%
PMV = 80%
$
Investment process
PMV = 50%
Stock selection
■
Competitive position & management
■
Unique assets
■
Brand
■
■
■
■
Share
Efficiency
Time
EV/EBITDA
DCF
Favorable trends
■
Secular
■
Cyclical
■
Internal
Comparable
Transactions
Valuation (PMV)
■
Future cash flows
■
Buyer/owner perspective
P/B
Private
Market
Valuation
EV/Sales
Sum of Probability
the Parts Analysis
Growth /variability
■
Discount to PMV
■
Investment performance
7.7
6.6
6.7
15
9.2
8.9
8.8
20
8.4
7.3
7.1
15.9
14.8
14.5
25
10
13.4
12.3
9.9
23.7
22.5
21.3
Historical returns (%)
30
5
0
3 Months
P/E
1 Year
PMV Small Cap Equity Composite - Gross
3 Years
5 Years
PMV Small Cap Equity Composite - Net
10 Years
Russell 2000 Index
All returns for periods greater than one year are annualized. NOTE: The complete GIPS® compliant presentation can be found at the end of document.
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Since
Inception
(4/1/91)
Wells Capital Management
PMV Small Cap Equity
Portfolio benchmark: Russell 2000 Index | As of December 31, 2016
Portfolio characteristics1
Ten largest company weights1, 2
Portfolio
Benchmark
Weighted median market cap
$2.7B
$1.9B
Waste Connections, Inc.
2.3
Long-term growth forecast
13.6%
12.5%
Pacwest Bancorp
2.0
EPS growth (1-year forecast)
10.3%
10.5%
Altra Industrial Motion Corp.
1.9
EPS growth (2nd year forecast)
11.9%
10.9%
Maiden Holdings, Ltd.
1.8
P/E (1-year EPS forecast)
20.7x
23.5x
Raymond James Financial, Inc.
1.8
Dividend yield
1.1%
1.5%
Cno Financial Group, Inc.
1.8
83
1,978
United Community Banks, Inc.
1.8
Anixter International Inc.
1.8
Legacytexas Financial Group, Inc.
1.8
Renasant Corporation
1.7
Number of holdings
Turnover 1 year trailing
Portfolio %
53%
Active share
94.9%
Sector weightings (% of equities)1
Financials
Portfolio
Benchmark
23.1
19.9
Investment team
Position
Industrials
22.1
14.6
Ann M. Miletti
Lead Portfolio Manager
Information Technology
17.3
17.0
Christopher Miller, CFA
Associate Portfolio Manager
Associate Portfolio Manager
Health Care
12.8
12.1
Kurt Gunderson
Consumer Discretionary
11.5
12.6
Garth Newport, CFA
Associate Portfolio Manager
Energy
4.9
3.8
Trevor A. D'Souza
Senior Portfolio Specialist
Materials
4.5
4.9
Kersten Larson
Senior Research Analyst
Senior Research Analyst
Real Estate
2.8
7.9
Theran Motl, CFA
Consumer Staples
1.2
3.0
Mike Adducci
Senior Research Analyst
Telecommunication Services
0.0
0.7
David Hermanny
Research Analyst
3.5
Gretchen Wilder
Research/Product Analyst
Jillian Morrissey
Associate Research Analyst
Joseph Bachmann
Associate Research Analyst
Corey Johnson
Trader
Utilities
0.0
1 This information is based on a representative account within the PMV Small Cap Equity Composite. The representative account has been selected by meeting the following criteria: 1) the account is in the PMV Small Cap
Equity Composite, 2) Wells Capital Management represents that the holdings, characteristics and risk profile are representative of the strategy/style of the PMV Small Cap Equity Composite. Any changes to the
representative account must be approved by one of the Co-Heads of Portfolio Risk Management and Analytics. Source: FactSet
2 Largest company weights are based on market value of the representative account and not necessarily held in all client portfolios. The information shown is not intended to be, nor should it be construed to be, a
recommendation to buy or sell an individual security. Past performance is not indicative of future results. A list of all holdings from the prior one-year period is available upon request. Source: FactSet
Note: CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
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Wells Capital Management
PMV Small Cap Equity
Portfolio benchmark: Russell 2000 Index | As of December 31, 2016
GIPS® compliant presentation
Gross Annual
Net Annual
Period
Return (%)
Return (%)
2016
23.7
22.5
2015
0.1
-0.9
2014
0.9
-0.1
2013
36.1
34.8
2012
23.0
21.8
2011
-6.4
-7.4
2010
30.7
29.4
2009
41.1
39.8
2008
-37.3
-38.0
2007
-1.2
-2.2
Primary Index = Russell 2000 Index
Primary Index
Return (%)
21.3
-4.4
4.9
38.8
16.3
-4.2
26.9
27.2
-33.8
-1.6
Composite
3 Yr Std Dev (%)
15.25
12.82
11.86
15.24
18.73
22.51
27.11
24.68
20.39
11.25
Primary Index
3 Yr Std Dev (%)
15.76
13.96
13.12
16.45
20.20
24.99
27.69
24.84
19.85
13.16
1.WellsCapitalManagement(“WellsCap”)claimscompliancewiththeGlobalInvestmentPerformanceStandards
(GIPS®)andhaspreparedandpresentedthisreportincompliancewiththeGIPSstandards.WellsCaphasbeen
independentlyverifiedfortheperiodsfromJanuary1,1997throughDecember31,2015.Verificationassesseswhether
(1)thefirmhascompliedwithallthecompositeconstructionrequirementsoftheGIPSstandardsonafirm-widebasis
and(2)thefirm’spoliciesandproceduresaredesignedtocalculateandpresentperformanceincompliancewiththeGIPS
standards.ThePMVSmallCapEquityCompositehasbeenexaminedfortheperiodsfromJanuary1,1993through
December31,2004andJanuary1,2010throughDecember31,2015.Theverificationandperformanceexamination
reportsareavailableuponrequest.
2.WellsCapisaregisteredinvestmentadviserandawhollyownedsubsidiaryofWellsFargoBank,N.A.Sincethefirm’s
creationin1996,thefirmhasacquiredanumberofinvestmentteamsand/orassetsthroughmergersandacquisitions.
Theseincludeassetsand/orinvestmentteamsfromNorwestInvestmentManagementInc.,SutterAdvisors,LLC,
MontgomeryAssetManagement,BensonAssociates,StrongFinancialCorporation,EvergreenInvestments,First
InternationalAdvisors,LLC,MetropolitanWestCapitalManagement,LLC,EverKeyGlobalPartnersandECMAsset
ManagementLimited.Inallcases,theinvestmentteamsinvolvedineachacquisitionandmergerremainautonomous
teamswithinWellsCap.
3.ThePMVSmallCapEquityComposite(“Composite”)consistsofalldiscretionaryaccountsmanagedinthisstyle.The
Compositecontainsaccountsinvestingprimarilyintheequitiesofsmallunderfollowedandundervaluedcompanieswith
marketcapitalizationsbetween$100millionand$3.5billion.Themanagerbasestheiranalysisonacompany’s“private
marketvaluation”–thepriceaninvestorwouldbewillingtopayfortheentirecompanygivenitsmanagement,financial
health,andgrowthpotential.Themanagerdeterminesacompany’sprivatemarketvaluationbasedonafundamental
analysisofacompany’scashflows,assetvaluations,competitivestanding,andotherfactorsthemanagerdeemstobe
relevanttoeachindustry.Investmentmanagementisconductedinabottom-upfashion,drivenbyfundamentalequity
research.Individualsecurityselectionistheprimarydeterminantoflong-terminvestmentresults.Cashmaybeheldin
modestamountstomanageriskduringadversemarketconditions.Themanagermaysellastockwhenitspriceno
longercomparesfavorablywiththecompany’sprivatemarketvaluation.Investmentresultsaremeasuredversusthe
Russell2000®Index.EffectiveMarch1,2008,RichardWeiss,Co-PortfolioManager,transitionedtoaroleofseniorteam
advisorandfocusedoncontributinginvestmentideasandstrategy.EffectiveJanuary1,2010,RichardWeissnolonger
servesasaseniorteamadvisor.TheCompositewascreatedin1993.TheCompositeinceptiondateisApril1,1991.
Internal
Dispersion (%)
N.A.
N.A.
N.A.
N.A.
0.16
0.16
0.26
0.22
0.63
0.47
Number of
Accounts
4
5
5
8
8
8
7
7
10
12
Composite
Assets ($-mm)
428.4
571.4
604.5
673.9
663.2
550.5
554.6
526.2
403.1
773.5
Total Firm
Assets ($-mm)
330,718
349,342
351,065
357,113
332,154
330,855
365,552
363,451
252,048
219,912
ofinvestmentadvisoryfees.Netcompositereturnsarecalculatedusingamodelinvestmentadvisoryfee,whichisthe
maximumannualadvisoryfeebaseduponthefeescheduleineffectduringeachrespectiveperformanceperiod.Any
changestothefeeschedulearereflectedinthecalculationofthenetcompositereturnsbeginningwiththeperiodin
whichthefeescheduleisrevised.Actualfeesmayvarydependingon,amongotherthings,theapplicablefeeschedule
andportfoliosize.WellsCap’sfeeschedulesareavailableuponrequestandmayalsobefoundinPart2ofFormADV.The
publishedfeescheduleforthisstrategyis1.00%forthefirst$25mm,0.90%forthenext$25mm,0.85%forthenext
$50mmand0.80%over$100mm.EffectiveApril1,2009,theCompositehasaSignificantCashFlow(SCF)policyto
temporarilyremoveaccountsfromthecomposite.ASCFisdefinedasasingleorseriesofclientinitiatednetcashflows
withinaseven-businessdaywindowofeitheracontributionorwithdrawalofcashand/orsecuritiesthatexceeds15%of
thepreviousday’stotalmarketvalueoftheaccount.AdditionalinformationregardingWellsCap’spoliciesforvaluing
accounts,calculatingperformanceandpreparingcompliantpresentationsisavailableuponrequest.
5.Internaldispersionistheequalweightedstandarddeviationoftheannualgrossreturnsofallaccountsincludedinthe
compositefortheentireyear.Foryearswherethereare5orfeweraccountsinthecompositefortheentireyear,
dispersionisnotpresentedasitisnotameaningfulstatisticalcalculation.The3-yearannualizedstandarddeviation
measuresthevariabilityofthegrosscompositereturnsandtheindexreturnsoverthepreceding36-monthtimeperiod.
6.Indexreturnsareprovidedtorepresenttheinvestmentenvironmentexistingduringthetimeperiodsshownandare
notcoveredbythereportofindependentverifiers.TheRussell2000®Indexmeasurestheperformanceofthesmall-cap
segmentoftheU.S.equityuniverse.TheRussell2000®isasubsetoftheRussell3000®Indexrepresentingapproximately
10%ofthetotalmarketcapitalizationofthatindex.Itincludesapproximately2000ofthesmallestsecuritiesbasedona
combinationoftheirmarketcapandcurrentindexmembership.Forcomparisonpurposes,theindexisfullyinvested,
whichincludesthereinvestmentofincome.Thereturnsfortheindexdonotincludeanytransactioncosts,management
feesorothercosts.
7.Actualperformanceresultsmaydifferfromcompositereturns,dependingonthesizeoftheaccount,investment
guidelinesand/orrestrictions,inceptiondateandotherfactors.Performanceforsomeaccountsinthiscompositemaybe
calculatedbythird-partiesthatusedifferentsecuritypricingandperformancemethodologies.Pastperformanceisnot
indicativeoffutureresults.Aswithanyinvestmentvehicle,thereisalwaysthepotentialforgainsaswellasthepossibility
oflosses.OurregistrationasanInvestmentAdviserdoesnotimplyanylevelofskillortraining.Foracompletelistof
WellsCapcompositedescriptions,pleaseseehttps://wellscap.com/about-us/business-risk-compliance.jsp.
4.Compositereturnsarenetoftransactioncostsandnon-reclaimablewithholdingtaxes,ifany,areexpressedinUS
dollars,andreflectthereinvestmentofdividendsandotherearnings.Grosscompositereturnsdonotreflectthededuction
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. WFAM includes but is not limited to Analytic Investors, LLC; ECM Asset Management Ltd.;
First International Advisors, LLC; Galliard Capital Management, Inc.; Golden Capital Management, LLC; The Rock Creek Group, LP; Wells Capital Management Inc.; Wells Fargo Asset Management Luxembourg S.A.; Wells
Fargo Funds Distributor, LLC; and Wells Fargo Funds Management, LLC.
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