Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Kayne Anderson Rudnick — Q1 2024 Earnings Presentation
31 slides from Virtus Investment Partners's earnings presentation, Jul 12, 2024
Slide 1: Small Cap Core Portfolio Managed Accounts First Quarter 2024
Small Cap Core Portfolio Managed Accounts First Quarter 2024 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 March 31, 2024 Profile At a Glance • Originally established to manage founder capital Year Founded 1984 Headquarters Los Angeles, CA • Over three decades of experience AUM $65.3 billion* • A differentiated “business analyst” investment approach Number of Equity Investment Profess
Slide 3: Employee Statistics
Employee Statistics As of March 31, 2024 African American Hispanic or 8% Latino 8% Male Female 65% 35% Gender Ethnicity Caucasian Asian 57% 28% 10+ years 31% Less than 5 years 39% Women Tenure of Men 48% Leadership Employees 52% Roles 5 - 10 years 29% Numbers may not always add up due to rounding. 3
Slide 4: Small Cap Core Team
Small Cap Core Team Portfolio Manager/Analysts Responsibility Research Start Date KAR Start Date Portfolio Manager and Senior Research Analyst Todd Beiley, CFA 1999 2002 Sector Coverage: Financials (Insurance Industry) and Information Technology Portfolio Manager and Senior Research Analyst Jon Chri
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 KAR High-Quality Universe
1 Investment Process Development of KAR High-Quality Universe Quantitative Screens: Other Resources for Names are: • High return on capital over a • Research on existing full economic cycle portfolio holdings • Long and resilient earnings • Meetings with companies Small Cap Universe history • Indust
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 March 31, 2024 KAR Small Cap Russell 2000® Core Index Quality Return on Equity—Past 5 Years 25.1% 9.9% Debt/EBITDA* 0.5 x 2.1 x Earnings Variability—Past 10 Years 30.6% 85.2% Growth Earnings Per Share Growth—Past 10 Years 14.6% 11.2% Dividend
Slide 16: Top Ten Holdings
Top Ten Holdings Small Cap Core Portfolio As of March 31, 2024 Top 10 Holdings GICS Sector % of Portfolio EMCOR Group Industrials 10.1 Simpson Manufacturing Industrials 8.6 FTI Consulting Industrials 6.6 Primerica Financials 6.2 CorVel Health Care 4.4 Research confidence leads to large active weight
Slide 17: Sector Weights
Sector Weights Small Cap Core Portfolio As of March 31, 2024 KAR Small Cap Russell 2000® Core Index Underweight/Overweight (%) Sectors (%) (%) Industrials 51.4 17.3 34.0 Financials 23.6 15.9 7.7 Communication Services 2.7 2.1 0.6 Materials 3.9 4.8 (0.9) Utilities — 2.5 (2.5) Consumer Staples — 3.3 (
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 3/31/24 (%) (%) (%) - Net (bps) 12/31 (%) (%) (%) - Net (bps) First Quarter 8.33 7.54 5.18 236 2023 34.01 30.13 16.93 1,320 2022
Slide 19: Risk-Return Analysis
Risk-Return Analysis Small Cap Core Portfolio Inception* to March 31, 2024 Meaningful Excess Return with Lower Volatility Annualized Since Inception* 18% 16% 14% KAR Small Cap Core - Gross 12% Annualized Return KAR Small Cap Core - Net 10% S&P 500® Index 8% Russell 2000® Index 6% 4% 2% 0% 0% 5% 10%
Slide 20: 5-Year Rolling Returns
5-Year Rolling Returns Small Cap Core Portfolio Inception* to March 31, 2024 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 2014 2
Slide 21: Peer Comparison
Peer Comparison Small Cap Core Portfolio Ten Years Ending March 31, 2024 0 25 Peer Ranking 50 75 100 Annualized Alpha Sharpe Information Tracking Annualized Beta Downside Return Ratio Ratio Error Standard Capture % Deviation KAR Small Cap Core Russell 2000® Index Small Cap Core Universe This materia
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 Todd Beiley, CFA Julie Biel, CFA Portfolio Manager and Senior Research Analyst with primary Senior Research Analyst with primary research research responsibilities for the small and mid-capitalization responsibilities for the small and mid-capitalization financials (i
Slide 27: Biographies
Biographies Small Cap Core Team Craig Stone Adam Xiao, CFA Senior Research Analyst with primary research Senior Research Analyst with primary research responsibilities for the small and mid-capitalization real estate responsibilities for the small and mid-capitalization and consumer staples sectors
Slide 28: Biographies
Biographies Small Cap Core Team Sean Dixon Arthur Su, 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 information technology and in
Slide 29: Biographies: Client Services Team
Biographies Client Services Team Jason Pomatto James May, CFA Managing Director – Senior Client Portfolio Manager Managing Director – Client Portfolio Manager Mr. Pomatto began his career in the investment management Mr. May began his career in investment management in industry in 1994. Before joini
Slide 30: Biographies: Executive Management
Biographies Executive Management Stephen A. Rigali, CFA Douglas S. Foreman, CFA Executive Managing Director and Member of the Executive Co-Chief Investment Officer and Member of the Executive Management Committee Management Committee Mr. Rigali has worked in the investment management Mr. Foreman has
Slide 31: Disclosure
Disclosure Small Cap Core (Wrap) Composite 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) 2014 7.31 4
Kayne Anderson Rudnick — Q1 2024 Earnings Presentation on 6ix