Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Kayne Anderson Rudnick — Q4 2022 Earnings Presentation
31 slides from Virtus Investment Partners's earnings presentation, February 2023
Slide 1: Small Cap Core Portfolio Managed Accounts Fourth Quarter 2022
Small Cap Core Portfolio Managed Accounts Fourth Quarter 2022 kayne.com 2000 Avenue of the Stars, Suite 1110 Los Angeles, CA 90067 T 800.231.7414
Slide 2: Firm Overview
Firm Overview As of December 31, 2022 Profile At a Glance • Originally established to manage founder capital Year Founded 1984 Headquarters Los Angeles, CA • Over three decades of experience AUM $47.5 billion* • A differentiated “business analyst” investment approach Number of Equity Investment Prof
Slide 3: Employee Statistics
Employee Statistics As of December 31, 2022 African American Hispanic or 7% Latino 9% Male 62% Female Gender Ethnicity 38% Caucasian 54% Asian 31% 10+ years 30% Less than 5 years Women 42% 43% Tenure of Leadership Employees Roles Men 57% 5 - 10 years 28% Numbers may not always add up due to rounding
Slide 4: Small Cap Core Team
Small Cap Core Team Portfolio Manager/Analysts Responsibility Research Experience Years with KAR Douglas S. Foreman, CFA Chief Investment Officer 36 Years 11 Years Portfolio Manager and Senior Research Analyst Todd Beiley, CFA 23 Years 20 Years Sector Coverage: Financials and Information Technology
Slide 5: Disciplined Investment Approach
Disciplined Investment Approach Investment Philosophy & Objectives Investment Philosophy We believe that purchasing high-quality businesses with competitive protections at attractive valuations will achieve excess returns over a complete market cycle Investment Objectives • To achieve a return meani
Slide 6: Tenets of Quality
Tenets of Quality Our Qualitative Business Assessment Competitive Protection Owner-Oriented Management • Brand/Reputation • Cultivates Competitive Advantage • Network Effect • Rational Capital Allocation • Scale/Cost Advantage • Considers Stakeholder Interests • Benchmarking Standard • High Customer
Slide 7: Source of Quality
Source of Quality Small Cap Core Portfolio Competitive Advantage Examples of High-Quality Business Models Network Effect Cost Advantage High Customer Brand Equity Switching Costs The securities presented on this page are chosen based upon objective, non-performance based criteria and are current hol
Slide 8: Investment Process Overview
Investment Process Overview A Business Analyst Approach 1 Development of High-Quality Universe 2 Proprietary Fundamental Research 3 Portfolio Construction & Sell Discipline 4 Risk Management 8
Slide 9: Development of High-Quality Universe
1 Investment Process Development of High-Quality Universe We source our investment universe in a number of ways Quantitative Screens • High return on capital over a full economic cycle • Long and resilient earnings history • High return on net operating assets • Minimal debt KAR Universe Other Resou
Slide 10: Intensive Fundamental Research
2 Investment Process Intensive Fundamental Research Research analysts and portfolio managers work together to develop in-depth business knowledge Purpose: Determine if Purpose: Evaluate source, Purpose: Estimate total Purpose: Evaluate competitive advantage exists level, and sustainability of return
Slide 11: Portfolio Construction
3 Investment Process Portfolio Construction Investment Guidelines • 20-40 holdings Position Weights • Maximum initial position size is 5% (at cost) • Maximum position size is 10% (at market) Sector Tolerances • Seek broad diversification, but no sector constraints Non-U.S. Holdings • Up to 20% • Typ
Slide 12: Sell Discipline
3 Investment Sell Discipline Process Sell Discipline • Significant premium to intrinsic value Extended Valuation • Expected annual return insufficient • Better business Portfolio Upgrade • Better price • Our holding acquired at an attractive premium Acquisition Activity • Our holding acquires a comp
Slide 13: Risk Management—Investment Oversight
4 Investment Process Risk Management—Investment Oversight Our risk management begins with our high-quality investment approach Risk Management • Focus on “high-quality” companies Investment Philosophy • Company’s “business risk” is primary risk control factor • Broad sector diversification Portfolio
Slide 14: Risk Management—Independent Oversight
4 Investment Process Risk Management—Independent Oversight Our risk management process also includes independent oversight to ensure that business and investment risk is thoroughly evaluated from multiple viewpoints Risk and Compliance Committee Oversees all business and regulatory risk Portfolio Ov
Slide 15: Portfolio Characteristics
Portfolio Characteristics Small Cap Core Portfolio As of December 31, 2022 KAR Small Cap Russell 2000® Core Index Quality Return on Equity—Past 5 Years 24.3% 9.9% Total Debt/EBITDA* 0.7 x 2.5 x Earnings Variability—Past 10 Years 31.2% 79.6% Growth Earnings Per Share Growth—Past 10 Years 14.6% 8.8% D
Slide 16: Top Ten Holdings
Top Ten Holdings Small Cap Core Portfolio As of December 31, 2022 Top 10 Holdings GICS Sector % of Portfolio FTI Consulting Industrials 7.3 EMCOR Group Industrials 7.0 Simpson Manufacturing Industrials 5.2 Primerica Financials 5.2 Toro Industrials 4.8 Research confidence leads to large active weight
Slide 17: Sector Weights
Sector Weights Small Cap Core Portfolio As of December 31, 2022 KAR Small Cap Russell 2000® Core Index Underweight/Overweight (%) Sectors (%) (%) Industrials 42.6 15.6 27.1 Financials 25.1 17.2 7.9 Communication Services 3.5 2.6 0.9 Information Technology 13.0 12.7 0.3 Consumer Staples 1.5 3.6 (2.1)
Slide 18: Returns
Returns Small Cap Core Portfolio Annualized Performance Calendar Year Performance Periods Ending Gross Net Index Excess Return Periods Ending Gross Net Index Excess Return 12/31/22 (%) (%) (%) - Net (bps) 12/31 (%) (%) (%) - Net (bps) Fourth Quarter 8.26 7.46 6.23 124 2022 (10.75) (13.42) (20.44) 70
Slide 19: Risk-Return Analysis
Risk-Return Analysis Small Cap Core Portfolio Inception* to December 31, 2022 Meaningful Excess Return with Lower Volatility Annualized Since Inception* 16% 14% KAR Small Cap Core - Gross 12% Annualized Return 10% KAR Small Cap Core - Net 8% S&P 500® Index Russell 2000® Index 6% 4% 2% 0% 0% 5% 10% 1
Slide 20: 5-Year Rolling Returns
5-Year Rolling Returns Small Cap Core Portfolio Inception* to December 31, 2022 30% KAR Small Cap Core - Gross 25% KAR Small Cap Core - Net 20% Russell 2000® Index 5-Year Rolling Returns 15% 10% 5% 0% (5%) (10%) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201
Slide 21: Peer Comparison
Peer Comparison Small Cap Core Portfolio Ten Years Ending December 31, 2022 0 25 Peer Ranking 50 75 100 Annualized Alpha Sharpe Sortino Annualized Beta Downside Return Ratio Ratio Standard Capture % Deviation KAR Small Cap Core Russell 2000® Index Small Cap Core Universe This material is deemed supp
Slide 22: Summary of Key Differentiators
Summary of Key Differentiators We Seek to Manage Risk and Generate Returns Differently CLASSIC APPROACH* KAR APPROACH † Minimal business risk stock portfolio stock portfolio Minimal balance sheet risk 75 20-40 RISK Minimal profit risk 1% to 2% 3% to 10% positions in positions high-quality companies
Slide 23: Appendix
Appendix • ESG Principles & Process • Biographies • Disclosure 23
Slide 24: ESG Principles
Investment Process ESG Principles Policy We believe that responsible investment practices which incorporate the consideration of environmental, social, and governance (ESG) topics add sustainable value for our investors and are consistent with our fiduciary duty. Philosophy Our investment strategy i
Slide 25: ESG Process
Investment Process ESG Process We use a proprietary ESG ratings framework to generate ESG scores for businesses in our portfolios as well as portfolio scores. • ESG research is conducted by each member of the investment team • Five key issues identified that we believe are the most material and fina
Slide 26: Biographies
Biographies Small Cap Core Team Douglas S. Foreman, CFA Todd Beiley, CFA Chief Investment Officer and Member of the Executive Portfolio Manager and Senior Research Analyst with Management Committee primary research responsibilities for the small and mid- capitalization financials and information tec
Slide 27: Biographies
Biographies Small Cap Core Team Julie Biel, CFA Craig Stone Senior Research Analyst with primary research Senior Research Analyst with primary research responsibilities for the small and mid-capitalization responsibilities for the small and mid-capitalization real information technology and health-c
Slide 28: Biographies
Biographies Small Cap Core Team Sean Dixon Adam Xiao, CFA Research Analyst with primary research responsibilities for Research Analyst with primary research responsibilities for the small and mid-capitalization consumer discretionary and the small and mid-capitalization financials, communication ind
Slide 29: Biographies
Biographies Small Cap Core Team Jordan Greenhouse James B. May, CFA Managing Director – Senior Client Portfolio Manager Managing Director – Client Portfolio Manager Before joining Kayne Anderson Rudnick in 2016, Mr. Greenhouse worked at Fidelity Investments for Prior to joining Kayne Anderson Rudnic
Slide 30: Biographies: Executive Management
Biographies Executive Management Stephen A. Rigali, CFA Douglas S. Foreman, CFA Executive Managing Director and Member of the Executive Chief Investment Officer and Member of the Executive Management Committee Management Committee Mr. Rigali has approximately 43 years of experience in the Mr. Forema
Slide 31: Disclosure
Disclosure Small Cap Core Portfolio Composite Pure Gross Composite Net Russell 2000® Index Composite 3-Yr Benchmark 3-Yr Internal Composite Firm Return* Return Return Std Dev Std Dev Number of Dispersion Assets Assets Year (%) (%) (%) (%) (%) Accounts (%) ($ Millions) ($ Millions) 2012 13.75 10.42 1
Kayne Anderson Rudnick — Q4 2022 Earnings Presentation on 6ix