Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Kayne Anderson Rudnick — Investor Presentation (August 2022)
30 slides from Virtus Investment Partners's investor presentation, August 2022
Slide 1: Small Cap Quality Value Portfolio Managed Accounts Second Quarter 2022
Small Cap Quality Value Portfolio Managed Accounts Second 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 June 30, 2022 Profile At a Glance • Originally established to manage founder capital Year Founded 1984 Headquarters Los Angeles, CA • Over three decades of experience AUM $47.9 billion* • A differentiated “business analyst” investment approach Number of Equity Investment Professi
Slide 3: Employee Statistics
Employee Statistics As of June 30, 2022 African American Hispanic or 7% Latino 8% Male Female 63% Gender Ethnicity 37% Caucasian 54% Asian 31% 10+ years 28% Less than 5 Women years 43% Tenure of 48% Leadership Employees Roles Men 57% 5 - 10 years 24% Numbers may not always add up due to rounding. 3
Slide 4: Small Cap Quality Value Team
Small Cap Quality Value 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 Julie Kutasov 21 Years 21 Years Sector Coverage: Materials, Industrials and Utili
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: Summary of Key Differentiators
Summary of Key Differentiators We Seek to Manage Risk and Generate Returns Differently CLASSIC APPROACH* KAR APPROACH† 8 years of negative Minimal business risk stock portfolio returns since 1998 stock portfolio 75 No stock can help or hurt 20-35 Minimal balance sheet risk RISK more than 2% Minimal
Slide 8: Source of Quality
Source of Quality Small Cap Quality Value Portfolio Competitive Advantage Examples of High-Quality Business Models Network Effect Cost Advantage High Customer Brand Franchise Switching Costs The securities presented on this page are chosen based upon objective, non-performance based criteria and are
Slide 9: Investment Process Overview
Investment Process Overview A Business Analyst Approach 1 Development of High-Quality Universe Proprietary Fundamental Research, 2 ESG Principles & Process 3 Portfolio Construction & Sell Discipline 4 Risk Management 9
Slide 10: Investment Process: Development of High-Quality Universe
Investment Process 1 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 11: Investment Process: Intensive Fundamental Research
Investment Process 2 Intensive Fundamental Research Research analysts and portfolio managers work together to develop in-depth business knowledge Purpose: Determine if competitive Purpose: Evaluate source, level, and Purpose: Estimate total return over several advantage exists and evaluate its stren
Slide 12: Investment Process: ESG Principles
Investment Process 2 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
Slide 13: Investment Process: ESG Process
Investment Process 2 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 fi
Slide 14: Investment Process: Portfolio Construction
Investment Process 3 Portfolio Construction Investment Guidelines • 20-35 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 15: Investment Process: Sell Discipline
Investment Process 3 Sell Discipline 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 16: Risk Management: Investment Oversight
Investment Process 4 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 17: Risk Management: Independent Oversight
Investment Process 4 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 18: Portfolio Characteristics
Portfolio Characteristics Higher Quality, Stronger, More Consistent Growth, & Better Value Small Cap Quality Value Portfolio — As of June 30, 2022 KAR Small Cap Russell 2000® Quality Value Value Index Quality Return on Equity—Past 5 Years 24.1% 8.7% In a market of average businesses, we seek to own
Slide 19: Appendix
Appendix • Portfolio Data • Biographies • Disclosure 19
Slide 20: Sector Weights
Sector Weights Small Cap Quality Value Portfolio As of June 30, 2022 KAR Small Cap Russell 2000® Quality Value Value Index Underweight/Overweight (%) Sectors (%) (%) Industrials 34.3 12.7 21.6 Consumer Discretionary 18.4 9.7 8.7 Information Technology 9.8 6.0 3.8 Consumer Staples 6.6 2.9 3.8 Materia
Slide 21: Conviction-Driven Investing Provides Opportunities for Excess Return
Conviction-Driven Investing Provides Opportunities for Excess Return Small Cap Quality Value Portfolio As of June 30, 2022 Top 10 Holdings GICS Sector % of Portfolio Azenta Health Care 5.5 Watsco Industrials 4.9 EVERTEC Information Technology 4.5 RBC Bearings Industrials 4.3 Houlihan Lokey Financial
Slide 22: Strong Risk-Adjusted Returns
Strong Risk-Adjusted Returns Small Cap Quality Value Portfolio Inception* to June 30, 2022 Meaningful Excess Return with Lower Volatility Annualized Since Inception* 14% 12% KAR Small Cap Quality Value - Gross 10% Annualized Return KAR Small Cap Quality Value - Net 8% S&P 500® Index Russell 2000® Va
Slide 23: Peer Comparison
Peer Comparison Small Cap Quality Value Portfolio Inception* to June 30, 2022 0 25 Peer Ranking 50 75 100 Annualized Alpha Sharpe Sortino Annualized Beta Downside Return Ratio Ratio Standard Capture % Deviation KAR Small Cap Quality Value Russell 2000® Value Index Small Cap Value Universe *Actual in
Slide 24: Returns
Returns Small Cap Quality Value Portfolio Annualized Performance Calendar Year Performance Periods Excess Periods Excess Ending Gross Net Index Return Ending Gross Net Index Return 6/30/22 (%) (%) (%) -Net (bps) 12/31 (%) (%) (%) - Net (bps) Second Quarter (12.12) (12.80) (15.28) 248 2021 19.71 16.2
Slide 25: Biographies
Biographies Small Cap Quality Value Team Douglas S. Foreman, CFA Julie Kutasov 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 materials, industrials a
Slide 26: Biographies
Biographies Small Cap Quality Value Team Todd Beiley, CFA Jon Christensen, CFA 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 health financials and
Slide 27: Biographies
Biographies Small Cap Quality Value 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, communic
Slide 28: Biographies
Biographies Small Cap Quality Value 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. Prior to joining Kayne Anderson Rudnick in 2019, Mr. May Greenhouse worked
Slide 29: 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 30: Disclosure
Disclosure Small Cap Quality Value Portfolio Russell 2000® Composite Pure Composite Net Value Index Composite 3-Yr Benchmark 3-Yr Number of Firm Gross Return* Return Return Std Dev Std Dev Accounts Internal Composite Assets Assets Year (%) (%) (%) (%) (%) (%) Dispersion (%) ($ Millions) ($ Millions)
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