Quarterly Commentary—Artisan Mid Cap Fund (ARTMX, APDMX, APHMX)
Total Page：16
File Type：pdf, Size：1020Kb
QUARTERLY Artisan Mid Cap Fund FactCommentary Sheet Investor Class: ARTMX | Advisor Class: APDMX | Institutional Class: APHMX As of 30 June 2019 Investment Process We seek to invest in companies that possess franchise characteristics, are benefiting from an accelerating profit cycle and are trading at a discount to our estimate of private market value. Our investment process focuses on two distinct elements—security selection and capital allocation. We overlay our investment process with broad knowledge of the global economy. Security Selection We seek to identify companies that have franchise characteristics (e.g. low cost production capability, possession of a proprietary asset, dominant market share or a defensible brand name), are benefiting from an accelerating profit cycle and are trading at a discount to our estimate of private market value. We look for companies that are well positioned for long-term growth, which is driven by demand for their products and services, at an early enough stage in their profit cycle to benefit from the increased cash flows produced by the emerging profit cycle. Capital Allocation Based on our fundamental analysis of a company’s profit cycle, we divide the portfolio into three parts. GardenSM investments are small positions in the early part of their profit cycle that may warrant more sizeable allocations as their profit cycle accelerates. CropSM investments are positions that are being increased to a full weight because they are moving through the strongest part of their profit cycles. HarvestSM investments are positions that are being reduced as they near our estimates of full valuation or their profit cycles begin to decelerate. Broad Knowledge We overlay the security selection and capital allocation elements of our investment process with a desire to invest opportunistically across the entire global economy. We seek broad knowledge of the global economy in order to find growth wherever it occurs. Team Overview We believe deep industry expertise, broad investment knowledge, a highly collaborative decision-making process and individual accountability are a powerful combination. Since the inception of the team, we have been committed to building a team of growth investors that retains these attributes and is solely dedicated to our process and approach. Portfolio Management Matthew H. Kamm, CFA James D. Hamel, CFA Craigh A. Cepukenas, CFA Jason L. White, CFA Portfolio Manager (Lead) Portfolio Manager Portfolio Manager Portfolio Manager Investment Results (%) Average Annual Total Returns As of 30 June 2019 QTD YTD 1 Yr 3 Yr 5 Yr 10 Yr Inception Investor Class: ARTMX 10.12 33.95 19.45 16.27 10.13 15.70 13.51 Advisor Class: APDMX 10.15 34.08 19.59 16.42 10.26 15.77 13.54 Institutional Class: APHMX 10.19 34.12 19.76 16.55 10.40 15.99 13.76 Russell Midcap® Growth Index 5.40 26.08 13.94 16.49 11.10 16.02 8.96 Russell Midcap® Index 4.13 21.35 7.83 12.16 8.63 15.16 9.75 Source: Artisan Partners/Russell. Returns for periods less than one year are not annualized. Class inception: Investor (27 June 1997); Advisor (1 April 2015); Institutional (1 July 2000). For the period prior to inception, each of Advisor Class and Institutional Class’s performance is the Investor Class’s return for that period (“Linked Performance”). Linked Performance has not been restated to reflect expenses of the Advisor or Institutional Class and each share’s respective returns during that period would be different if such expenses were reflected. Expense Ratios ARTMX APDMX APHMX Semi-Annual Report 31 Mar 20191 1.20 1.08 0.96 Prospectus 30 Sep 20182 1.18 1.05 0.96 1Unaudited, annualized for the six-month period. 2See prospectus for further details. Past performance does not guarantee and is not a reliable indicator of future results. Investment returns and principal values will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than that shown. Call 800.344.1770 for current to most recent month-end performance. Quarterly Commentary Artisan Mid Cap Fund As of 30 June 2019 Investing Environment sector level in Q2, tied mainly to Canada Goose’s performance, which Despite a meaningful May correction, markets landed mostly in the we’ll discuss in further detail later in this communication. black in Q2, with US markets leading, followed by non-US developed and emerging markets. Investors continued mulling the potential for It’s worth highlighting that performance in Q2 was helped by well- slowing growth in major economies, including Europe and China. received M&A activity which impacted several of our CropSM holdings, Further, global trade tensions remained top of mind—though as the including Tableau and Global Payments. Tableau Software was quarter concluded, China and the US signaled they would resume acquired at a meaningful premium by Salesforce in June, validating negotiations. Brexit also remained an ongoing source of uncertainty, our conviction in the data analytics trend and Tableau’s leading with PM May announcing she would step down as the leader of the position. Global Payments announced an all-stock merger with TSYS Conservative Party but would remain PM until her successor is chosen. which we think will lead to revenue and cost synergies under Global As of this writing, the UK is set to leave the EU as of October 31, with Payments’ capable management team. In addition, while the Harris the manner of the country’s exit still an open question. These Corp/L3 Technologies and Worldpay/FIS mergers were announced in concerns aside, however, corporate earnings were solid with many previous quarters, those stocks outperformed in Q2 as investors’ economic indicators relatively robust—helping soothe investor conviction in the merged companies’ growth prospects strengthened nerves and contributing to June’s bounce-back. as the deals neared closing. On the monetary policy front, major global developed world central Among our top contributors in Q2 were Tableau, Global Payments banks left interest rates unchanged during Q2 as expected. However, and Veeva Systems. Tableau is a provider of unique, interactive data several—notably, the Fed—indicated they will remain visualization software allowing enterprise clients to quickly translate accommodative as economic conditions and the ongoing trade complex data into compelling graphics. The aforementioned negotiations evolve in the coming months. Interest rates were acquisition by Salesforce caps a successful investment campaign as pressured following the announcements, while equity markets we recognized early that Tableau’s new management team was seemed bolstered. positioning the company for faster, more reliable growth by shifting to a subscription-based business model and doubling down on At the sector level, information technology led as investors’ appetite continually improving its analytics tools for customers. However, we for growth-oriented stocks has remained robust, despite the have mixed feelings about the acquisition, as we think over time the aforementioned concerns about the global growth trajectory. stock would have surpassed the value of Salesforce’s offer based on Conversely, energy and health care were the primary laggards. Oil our future cash flow projections. Because we expect the deal to prices fell for much of Q2 as supply is abundant and alternatives are close—and because shareholders are receiving shares of Salesforce’s becoming increasingly competitive. Though oil prices bounced stock, which is far beyond our mid-cap mandate—we have been sharply in June as Middle East tensions flared, they were insufficient to harvesting our position. lift energy from among the bottom-contributing sectors for the quarter. The health care sector has been pressured amid amplifying Shares of Global Payments were rewarded following solid quarterly US political rhetoric ahead of the presidential primary, which has results that exhibited the strength of the company’s strategic focus on increased uncertainty about the future of the insurance industry and software-enabled payments, as well as management’s consistent pharmaceutical pricing. From a size perspective, small stocks trailed execution. Further, we believe Global Payments’ aforementioned their larger counterparts during Q2—though mid cap leads YTD, merger with TSYS—another leading provider of payments processing followed by large stocks and small. and related services—is a strong strategic fit. We anticipate the international marriage of Global Payments’ global scale and existing Performance Discussion relationships with TSYS’s sticky software solutions can help scale the Our portfolio outperformed the Russell Midcap® and Russell Midcap® latter’s business, which is particularly attractive for its high margins. Growth Indices in Q2 and remains ahead of both indices YTD. Returns We believe the secular trend toward digital payments remains in its were strong from an absolute and relative perspective as relatively early innings and consequently believe there is ample macroeconomic worries and falling rates represented a positive runway ahead of high-quality franchises like Global Payments. market environment for many of our holdings, whose profit cycles tend to be driven by secular trends, innovation and internal change Veeva Systems continues winning new life-science industry customers (as opposed to global GDP dynamics). Those profit cycles were on full and selling additional software tools to existing customers, which is display during the quarter, as most CropSM holdings reported solid driving strong revenue growth. Further, the efficiency of Veeva’s quarterly results. At the sector level, our information technology operating model (a modern technology platform, products that have holdings were the strongest performers, followed by our health care earned high customer satisfaction and a mature sales force footprint) holdings. In both cases, positive stock selection was aided by our is translating into very impressive margin expansion. During Q2, ongoing focus on cloud-based software franchises.