Author: QSV Equity

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The Long Strange Trip of 2020, December 15, 2020

To borrow heavily from Jerry Garcia and Bob Weir of the Grateful Dead, what a long, strange trip 2020 has been. After beginning the year with great expectations (remember images like the one below?) and with the strong market returns of 2019 vivid in the minds of investors, the world faced the reality of a global pandemic that shocked the markets in February and March.

AP Photo/Mark Lennihan

The drawdown in stock markets during the February 20 – March 23 period was severe and took most by surprise, given the rosy outlook that launched 2020. Credit is due to the Federal Reserve and the government for promptly acting and providing stimulus to the markets, to businesses and to consumers whose spending makes up 70% of the economy. While the COVID-19 recession is global and remains very real, Work from Home stocks including the much-discussed FAANGMi began to lead the U.S. markets higher in late March.

Through the summer and into the fall the markets rotated to include participation by more economically sensitive businesses. Economic expectations improved, bolstered by positive drug trials for COVID-19 vaccines. Smaller capitalization companies that had experienced more modest returns came alive in November with the returns of the Russell 2000 being the strongest on record. The outcome of the U.S. election and the prospect of a government divided between a Democratic President and a Republican Senate offered an outlook for subdued regulatory change that has been welcomed by the markets.

Inside the Numbers

As often occurs with an outlook for economic recovery and the exit from a recession, smaller capitalization and lower quality businesses outperformed. To highlight this, QSV examined our universe of stocks and sorted by those with positive and negative net income during 2019. Through December 8, 2020, companies in the Russell 2000 Index with negative net income have risen 32.6% in 2020; those with positive net income have risen only 3.7%.

QSV is committed to investing in quality businesses, those we believe have durable competitive advantages, stable and growing returns on invested capital, low leverage, and stable and persistent earnings. After patiently waiting for the stocks of those businesses to be reasonably priced, we invest our clients’ and our own capital with the belief that the resulting portfolio will provide a smoother ride, participating well in rising markets while protecting capital in falling markets and delivering competitive, risk-adjusted returns over a full market cycle. QSV uses a proprietary ranking system for its universe of prospective holdings, with companies ranked in the top two (A and B) quintiles recognized as high quality and those in the bottom two (D and E) quintiles considered low quality. As shown below, high quality businesses did help protect investors, as anticipated, during the sharp selloff in February and March. Also as expected, lower quality stocks have soared more significantly in the recovery that has followed, creating a headwind for the performance of quality-biased investment strategies during 2020.

QSV Chart

 

Looking solely at the smaller capitalization (under $3 billion) businesses within this universe, the disparity between high quality and low-quality concerns has been even more significant for the year-to-date 2020 period and during the recovery since March. This, too, is expected, as smaller companies often have more volatile earnings and more volatile stock performance, but it has stood as a strong detractor to the relative performance of quality-biased investment strategies.

Performance headwinds for quality-biased strategies during 2020 can also be explained by equity beta, or how sensitive the stock price is to a change in the overall market. Using the full universe of prospective holdings that QSV monitors, we found that high beta outperformed low beta by 1.61 times during the recovery since March, with a return of 66.49% for the lowest beta quintile and a gain of 135.31% for the stocks in the highest beta quintile.ii

QSV Chart

 

QSV has previously written a white paper, The Myth of High Beta, where we address the belief by some that high beta stocks are the answer to investors’ long-term investment success. We disagree, believing that low volatility stocks are better suited to deliver above-average returns over longer time frames. The QSV strategies and those of other quality-biased investors are generally characterized by lower than market levels of beta. Comparing the holdings in the QSV strategies from the March 23, 2020 market low to those of the Russell 3000, we found betas of .91 for QSV Quality Value Midcap, .88 for QSV Quality Value Smallcap and .89 for QSV Select Value strategy.

Outlook: Truckin’ into 2021

When considering the near-term outlook for QSV and other quality-biased investment strategies, we will again look to the Grateful Dead and borrow its lyrics: “Sometimes the lights all shinin’ on me; other times, I can barely see.”

The robust returns of 2020, particularly for the stocks of lower quality, more economically sensitive businesses, were built on an expectation of greater economic prosperity to come. Both lower income and higher income workers continue to feel impacts from the COVID economy; wages for higher income workers (those that propel much of consumer spending) fell in November during the very period that the Russell 2000 Index was recording record gains.iii Corporate debt has climbed and there are a rising number of “zombie companies” or those that are in debt such that any cash generated is being used to pay off the interest on the debt. While the stimulus provided by the government in 2020 was necessary to prevent more immediate, profound destruction, it has propped up lower quality businesses with limited or no earnings and supported frothy stock returns in areas of the market that offer little in the way of real business performance. Adding to worries is that the aforementioned divided government and its prospects for subdued regulatory changes remains a question mark. The upcoming runoffs in the Georgia Senate could result in a “Blue Wave,” with risks of unwinding the deregulation and tax cuts that resulted under the Trump administration.

The New Year is upon us and opportunities and risks abound. Focusing on quality businesses, where there is transparency (a “shinin’ light”) into the competitive advantages and drivers of business performance, is essential to constructing portfolios that will both manage risks and deliver returns in the future.

About QSV Equity Investors, LLC

QSV Equity Investors, LLC is an employee-owned asset management firm that invests alongside its clients in high conviction portfolios of quality small and mid-capitalization businesses. QSV manages these portfolios of publicly traded companies for individuals, family offices and institutions. Based in Oakbrook Terrace, Illinois, QSV was founded in 2016 by Jeff Kautz and Randy Hughes, investment professionals who previously held senior roles at Perkins Investment Management and have invested together for over 20 years. For more details on the specific performance and characteristics of the QSV strategies, including a fully GIPS compliant presentation, please contact Dave Mertens at dmertens@ballastequity.com.


i Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), Alphabet (NASDAQ:
GOOG, NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT)
ii Beta was calculated using a three-year trailing Beta versus the Russell 3000 as of March 18, 2020 so as to not reflect performance since that date.
iii Heer, John (December 3, 2020) Analysis: Assessing the True Strength of U.S. Consumers’ Finances (morningconsult.com)

QSV Equity Investors Q3 2020 Commentary

QSV Equity Investors Q3 2020 Commentary

Additional information and since-inception performance for each of the QSV strategies may be found at www.qsvequityinvestors.com.

QSV Strategy Performance

Market participants experienced two sharply different environments during the quarter with U.S. equities
marching higher propelled by stimulus fuel in July and August while renewed investor concerns, market
volatility, and negative performance returned in September. Within small and mid-cap indexes, returns
from certain consumer cyclical stocks were the standout performers, as companies in retail, auto sales,
home improvement and gaming benefitted from the COVID economy. Returns for energy companies were
a mirror image of those positive returns and bank financials were also challenged. Large cap indexes
continued to be dominated by a few large tech names, prompting QSV to “talk its book” and advocate
that the stocks of quality small and mid-cap businesses present more compelling opportunities.

The QSV Quality Value Smallcap Strategy returned 1.41% and 1.16%, gross and net of fees, lagging the 2.56% and 4.93% returns, respectively, of the Russell 2000 Value and Russell 2000 Indexes. An overweight and strong selection in Healthcare companies aided performance, while an underweight and underperformance in Consumer Cyclical companies detracted. Year-to-date, the QSV strategy returned (13.27%) and (13.91%) gross and net of fees, in comparison to returns of (21.54%) and (8.69%), respectively, for the Russell 2000 Value and Russell 2000 Indexes.

Quality Value Smallcap Top Contributors

Omega Flex Inc. (OFLX) and Simulations Plus, Inc. (SLP) were the top contributors to performance for the quarter, each with tailwinds related to the COVID economy.

As COVID-19 restrictions eased in the U.S., investor optimism returned to Omega Flex and other industrial stocks related to construction. OFLX is a manufacturer of flexible metal hose with products used in residential and commercial construction. Residential housing has been a positive during 2020 and OFLX profits as more homes use gas for heating. Leadership extends to other markets, including road transportation, semi-conductor, medical, pharmaceutical, and petrochemical products. OFLX benefits from high switching costs once its solutions are designed into these products. Returns on Invested Capital are 33% and OFLX has net margins of 16%.

Simulations Plus produces software and provides consulting analytics for use in drug discovery. SLP is approaching a 20% market share of the pharmaceutical, biotechnology, and generic companies that would be potential users of its software and consulting services. Its StrategiesPlus COVID-19 ACT Program, launched in early 2020, is designed to help speed pharmaceutical research and accelerate the process of regulatory approval, contributing to resolving the COVID-19 pandemic. Positive results are also expected as employees of pharma and biotech customers return to work following the COVID-19 pandemic and commit to new engagements with SLP. High switching costs, intellectual property and high contract renewal rates support operating margins of 28%.

Quality Value Smallcap Top Detractors

Top detractors to performance during the quarter were PaySign, Inc. (PAYS) and Oil Services International, Inc. (OIS).

PaySign, Inc. provides prepaid card programs specializing in corporate incentive products, payroll cards, general purpose re-loadable cards, and travel cards. Areas of growth for the business include its pharmaceutical payment assistance programs and plasma donor network services. PAYS offers promotional campaigns to limit a patient’s out-of-pocket prescription drug costs through a prepaid debit card in the former and donor payment programs in the latter. PaySign benefits from a high level of contractually recurring revenue, but still suffered from impacts related to the pandemic that lowered revenues in its Pharma and Plasma businesses during the second quarter. While challenges exist, Returns on Invested Capital are 32% and shares are selling at a significant discount to QSV’s view of intrinsic value.

Oil Services International was a leading detractor during Q3 2020. OIS is a provider of specialty products and services to the drilling, production and infrastructure sectors of the oil and gas industry. Barriers to entry are high in each of its markets which supports high margin products. QSV has been mindful of risks to the business including being levered to the number of new wells completed in the U.S. We believe OIS to be well managed but have concerns over its balance sheet because of challenges to its end markets. QSV exited its position in early September, avoiding the subsequent slide in OIS’ stock price.

Quality Value Smallcap Portfolio Activity

Activity during Q3 2020 focused on lowering cyclicality and upgrading quality. In addition to the previously mentioned sale of Oil Services International, QSV sold positions including retailer Kohl’s and bank financials Summit Financial Group (SMMF) and Southern First Bancshares (SFST). Proceeds funded purchases of NIC Inc. (EGOV), a provider of technology services to state and local governments, and Sensient Technologies Corporation (SXT), a manufacturer of colors, fragrances, and flavors. Both businesses benefit from high switching costs. Also added was life sciences company Meridian Bioscience, Inc. (VIVO), a leader in providing diagnostic test kits, antigens and reagents to agri-bio and pharmaceutical companies. The QSV team has owned VIVO on and off for many years and believes its fundamentals and current share price offer a compelling opportunity.

The QSV Quality Value Midcap Strategy returned 5.38% and 4.96%, gross and net of fees, lagging the 6.40% return of the Russell Mid Cap Value Index and the 7.46% return of the Russell Mid Cap Index. Relative to the Value Index, QSV’s performance was helped by an overweight and stock selection in Technology companies. An underweight and security selection in the Consumer Cyclical sector detracted from performance as highly cyclical companies held by the index in that sector rallied on optimism of the economy reopening. Year-to-date, the QSV strategy returned (.09%) and (.96%) gross and net of fees, comparing favorably to returns of (12.84%) and (2.35%) for the Russell Mid Cap Value and Russell Mid Cap Indexes.

Quality Value Midcap Top Contributors

Copart Inc. (CRPT) and Varian Medical Systems Inc. (VAR) were the leading contributors to performance for the QSV Quality Value Midcap strategy during Q3 2020.

Concerns over fewer miles driven during the pandemic weigh on Copart, Inc., but its business performance continues to be strong, with better than expected revenues and improving margins. CRPT is the largest player in the automotive salvage market, providing auction and related services to approximately 40% of the North American market. CPRT has a long history of generating real economic returns, supported by its competitive moats, and delivers a robust 26% return on invested capital. Its strong balance sheet has supported an increase in capital expenditures including expansion into non-U.S. markets, particularly in Germany, and over 50 expansion projects that the company has in the construction and engineering phases.

Varian shares rose significantly during the quarter on news that the company would be acquired by Siemens Healthineers AG in an all cash transaction worth $177.50 per share, a 24% premium to the company’s share price prior to the announcement of the deal. Varian Medical Systems designs, manufactures, and sells radiation technology for use in its oncology systems and proton therapy segments. VAR benefits from tremendous scale in radiation therapy and has a market share that is nearly double that of its nearest competitor, Elekta.

Quality Value Midcap Top Detractors

The Energy sector was the sole index sector in the red during Q3. Within that, Quality Value Midcap holdings Oil Services International, Inc. (OIS) and Core Laboratories (CLB) were the leading detractors from performance during the quarter.

Our commentary on Oil Services International is noted above.

After serving as a top contributor last quarter, Core Laboratories was a leading detractor to performance in Q3 2020. QSV had opportunistically purchased shares of CLB in April, quickly benefitted from a substantial increase in share price during Q2 and trimmed its position in June. Core Laboratories helps oil and gas companies improve production levels and economics with core and reservoir analysis. Its core analysis business has been virtually unchallenged for three decades. While its end markets are currently challenged, QSV believes the competitive advantages of CLB to be sound and sees shares of the company to be selling at a significant discount.

Quality Value Midcap Activity

As with QSV’s Quality Value Smallcap accounts, activity was focused on lowering cyclicality while upgrading the quality of the Quality Value Midcap strategy. Oil Services International and Kohl’s were sold, as was global money transfer and payment processing firm Euronet Worldwide (EEFT). Risks to EEFT that were previously identified by QSV included currency risk and a sensitivity to global tourism and the business grew more challenged because of the COVID economy. Proceeds from these and other sells funded the purchases of ACI Worldwide (ACIW), MSA Safety (MSA), Aspen Technology (AZPN), and Qualys Inc. (QLYS). ACI is a leader in providing payment processing services to the financial services industry and benefits from 75% recurring revenues. MSA Safety offers essential safety products to municipal fire departments and other customers. Aspen Technology performs software development and IT services for clients with contracts of five to six years, supporting 90% recurring revenues. Qualys is a leader in cloud security, serving 46% of the Forbes Global 500 and producing Returns on Invested Capital of 17%. These high quality companies have been on QSV’s radar for some time and the volatility late in the quarter provided attractive entry points for each.

The QSV Select Value Strategy returned 3.37% and 2.99% gross and net of fees, lagging the 3.54% return and the 5.88% return of the Russell 2500 Value and the Russell 2500 Indexes, respectively. The portfolio’s overweight and stock selection in Healthcare helped performance, while security selection in the Financial sector detracted. Year-to-date, the QSV strategy returned (4.46%) and (5.27%) gross and net of fees, comparing favorably to returns of (18.39%) and (5.82%) for the Russell 2500 Value and Russell 2500 Indexes.

Select Value Top Contributors

Reflecting the “best ideas” nature of the Select Value strategy, Varian Medical Systems Inc. (VAR) and Copart Inc. (CPRT), both top contributors in the Quality Value Midcap strategy, were leading contributors to the Select Value in Q3 2020. Each is discussed above.

Select Value Top Detractors

Paysign (PAYS) and Citizens & Northern Corporation (CZNC) were leading detractors to the performance of the Select Value strategy during the quarter; Paysign is discussed above in our commentary for QSV Quality Value Smallcap.

Shares of Citizens & Northern Corporation fell 20% during the quarter, detracting from performance of the Select Value strategy. CZNC operates as a holding company for community bank operations in North Central Pennsylvania and Southern New York State. QSV’s sale of this position and the investment of its proceeds are discussed below.

Select Value Activity

Drawing from the best ideas of QSV’s Quality Smallcap and Quality Midcap strategies, positions were added in Aspen Technologies, MSA Safety, NIC, Inc., all of which are discussed above. These purchases were funded through the sale of companies including Kohl’s, Vail Resorts, and Euronet Worldwide. Citizens & Northern Corporation was sold to take a tax loss, as were the strategy’s other bank holdings, Civista Bancshares (CIVB), Premier Financial Corporation (PFBI), Southern First Bancshares (SFST), and West Bancorp (WTBI). QSV’s team saw an opportunity to replace these banks with what it believes to be higher quality banks in states showing population growth. Positions were initiated in Synovus (SNV), FB Financial Corp. (FBK), Glacier Bancorp (GBCI), and Bank OZK (OZK).

Focused on the Long Term

In our commentary last quarter, we noted that it is important to consider that recent gains were driven by stimulus efforts, by an optimistic view that the worst of the pandemic is over and that progress on potential vaccines will soon yield results. Our thoughts remain the same as they were three short months ago; risks persist and should be managed. As investors, QSV’s team must balance optimism about the prospects for our holdings with risk management, both at the macro level and in assessing the potential challenges to the companies in our portfolios. One pundit recently noted that historians in the future will need to specify in which quarter of 2020 they specialize, given the continuous stream of events and surprises the year has presented to us all (and may yet offer). Despite the risks we know and those that we do not, QSV sees complacency on the part of many investors. We believe it is better in this environment than offense. We play defense by owning high quality small and mid-cap companies, purchased at reasonable valuations, and monitored closely by experienced analysts. As always, we remain personally invested alongside our clients and welcome questions and opposing views.

Disclaimer:
Returns are for the respective composites of QSV Equity Investors (BEM). Gross returns are calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s management fee. All dividends are assumed to be reinvested. The returns of the BQV Midcap Strategy are compared to the historical performance of the Russell Midcap Indices as they are a widely used benchmarks for mid capitalization securities. The returns of the BQV Smallcap Strategy are compared to the historical performance of the Russell 2000 Indices as they are a widely used benchmarks for small capitalization securities. The returns of the QSV Select Value Strategy are compared to the historical performance of the Russell 2500 Indices as they are a widely used benchmarks for SMID capitalization securities. An investment with QSV Equity Investors should not be construed as an investment in a program that seeks to replicate, or correlate with, these indices. Market conditions vary between the BEM products and these indices. Furthermore, these indices do not include any transaction costs, management fees and other expenses, as do the BEM Products. Lastly, BEM may invest in securities and positions that are not included in these indices.

No client or potential client should assume that any information presented should be construed as personalized investment advice. Personalized investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Investing carries risk of loss.

QSV Equity Investors claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS composite report, please contact QSV at (844) 3-BALLAST

QSV Equity Investors is a registered investment advisor. For additional information about the firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov

QSV Offers Resource to Advisors: Back to Business – Q4 2020 RIA M&A Outlook

Back to Business – Q4 2020 RIA M&A Outlook

2020 has been a challenging environment for even the most resilient Advisors and their Clients. Many business plans focusing on growth this year
were thrown out of the window in March when the global pandemic effectively shut down the economy. As we begin to resume normal business activities, FLX Distribution and our Asset Manager partner, QSV
Equity are committed to bringing you resources to best position your practice for growth.

Please join us on Tuesday October 6th, 2020 at 12 pm ET for a conversation with Skyview Partners and MyRIALawyer to learn more about:

• How M&A transactions and RIA valuations have been affected by Covid-19 – what it means for your succession plan or growth strategy.
• Preparing for the commercial loan process and how to successfully leverage bank financing.
• Regulatory considerations for RIAs – the most common red flags regulators look for and how to leverage outside legal counsel, allowing you and your team to focus on growth.

Click here to join the meeting October 6th at 12 pm ET via Zoom. Meeting ID: 947 3310 4242
Passcode: 3YRx1a

Sponsored by FLX Distribution and QSV Equity

Investors

FLX Distribution                    QSV Equity Investors

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Skyview Partners                                                        My RIA Lawyer

The Crowded House of Investing, September 2020

 

Investors’ Choice: Crowded House or Prudent Distancing?

September 2020

Despite the recent volatility in large cap U.S. stocks, performance leadership has been driven by the top ten contributors in the S&P 500 more greatly than any other period in the past ten years. Shares of large technology companies continued to march higher in August, causing large cap indexes and many investors to be highly concentrated in their ownership of these companies. While the businesses themselves are in many cases remarkable, the price being paid for their shares appears stretched and, for long term investors, they may prove to be poor investments in the coming years. We believe that it is prudent for investors to look elsewhere, to less crowded segments of the market, for quality businesses at more reasonable valuations.

A Crowded House

In writing The Intelligent Investor, Benjamin Graham noted that “to enjoy a reasonable chance for continued better than average results, the investor must follow policies which are (1) inherently sound and promising, and (2) not popular on Wall Street.” In 2020, the stock market popularity contest has rewarded investors in the crowded trades of large companies including Apple, Microsoft, Amazon, Google, and Facebook. The market capitalization of these five companies in the S&P 500 roughly equals the market caps of the indexes bottom 375 businesses and go well beyond the levels of concentration seen in 1999. Apple alone has a market cap greater than the entire Russell 2000 index of smaller companies. But, as Graham would remind us, these short-term fluctuations of stocks do not equate to wealth creation.

page1image93245762020, Cornerstone Macro

Concentration in the largest companies is not the only similarity between today’s market and that of 1999. The underperformance of small cap companies and, in particular, small cap value stocks, is also similar. The third quarter has had a “buy anything” tenor that lifted small cap value stocks by 7.56% in August, yet as measured by the Russell 2000 Value index, stocks of these companies are still down 17.71% for the year through August 31. Further, they have delivered annualized returns of -1.39% for the past three years, significantly lagging the 11.71% annualized return, before the reinvestment of dividends, for the S&P 500.

Prudent Distancing

A shift away from the concentrations in large technology companies began in the early days of September. Whether that shift continues or not is unknown. We remain in an environment of low interest rates where investors have seemingly few alternatives as they seek growth opportunities. In uncertain times it pays to own quality businesses, those with growing revenues and high and persistent returns on invested capital, as an antidote to uncertainty. Shares of large technology companies have basked in that uncertainty for much of 2020 but it may be the appropriate time for a degree of distancing. QSV sees many compelling small and mid-sized companies available to those who do their homework. High conviction holdings in our strategies include:

Broadridge (BR) provides investor communications, proxy voting services and technology solutions to corporate customers as well as those in banking and asset management. Its competitive advantages include high switching costs; a 98% client retention rate helps support returns on invested capital of 18%.

Masimo Corporation (MASI) is a medical technology company that develops, manufactures, and markets non-invasive patient monitoring systems. Hospitals and customers such as Philips and General Electric rely on its products and the company is positioned for growth with its next generation pulse oximetry product (precision measurement of blood oxygen), a market in which it operates as a duopoly with Medtronic. The company has operating margins exceeding 20% and is targeting margins of 30% over the next five years. Returns on invested capital are 20%.

Tyler Technologies (TYL) provides technology and management solutions to the public sector with a focus on local governments. Recurring revenues represent 65% of sales and Tyler has a 98% customer retention rate. While risks of lower government spending exist, the company’s business is well diversified and represents a small cost to ensuring that less cyclical services such as courts and justice and public safety run smoothly. Returns on invested capital are currently 13% and Tyler is accelerating investment in research and development to drive new product development.

Xilinx, Inc. (XLNX) is a long term, high conviction holding for QSV that has grown into a large cap stock. The company designs and develops programmable logic semiconductor devices used in military, industrial, automotive, wireless and wireline communications. Current tailwinds for the business include further development of shared data centers and the build out of 5G networks. XLNX enjoys a competitive “moat” that is sustainable due to high switching costs among its customers. This advantage supports returns on invested capital of 18% and shares are at a discount to our view of the company’s fair value.

Where do the markets go from here? QSV cannot predict the near-term movements of stocks large or small. We do know, however, that small and mid-cap companies, particularly small and mid-cap quality businesses, have rewarded investors with strong long-term returns. The opportunity exists for investors to assess their current asset allocation and harvest gains from the popular large cap companies that have

become the crowded house of the investing world. Reallocating to high quality smaller businesses that have been less popular of late is the type of distancing that we believe will benefit prudent investors.

About QSV Equity Investors, LLC

QSV Equity Investors is an employee-owned asset management firm that invests alongside its clients in high conviction portfolios of quality small and mid-capitalization businesses. QSV manages these portfolios of publicly traded companies for individuals, family offices and institutions. Based in Oakbrook Terrace, Illinois, QSV was founded in 2016 by Jeff Kautz and Randy Hughes, investment professionals who previously held senior roles at Perkins Investment Management and have invested together for over 20 years. For more details on the specific performance and characteristics of QSV’s strategies, including a fully GIPS compliant presentation, please contact Dave Mertens at dmertens@ballastequity.com.

August 25, 2020 Oakbrook Terrace, IL – PSN Top Guns Press Release

Oakbrook Terrace, IL – August 25, 2020 – QSV Equity Investors has been awarded multiple PSN Top Guns distinctions by Informa Financial Intelligence’s PSN manager database, North America’s longest running database of investment managers.

 

QSV was honored with Bull and Bear Master recognition for its Quality Value Midcap strategy as well as 2-star and 3-star Top Gun ratings for that product in the Mid Cap Value Universe. QSV also received a 2-Star award for its Select strategy in the Small-Mid Value Universe.

 

“QSV is pleased to have delivered results for our clients that have been recognized by Informa Financial Intelligence,” noted QSV CEO Jeff Kautz. “We are particularly gratified that the Bull and Bear Master recognition reflects the smoother ride we seek to offer investors in volatile markets.”

 

Through a combination of Informa Financial Intelligence’s proprietary performance screens, *PSN Top Guns (*free registration to view Top Guns) ranks products in six proprietary categories in over 50 universes. This is a well-respected quarterly ranking and is widely used by institutional asset managers and investors. Informa Financial Intelligence is part of Informa plc, a leading provider of critical decision-making solutions and custom services to financial institutions.

 

QSV Quality Value Midcap strategy was named among the Bull and Bear Masters, meaning the strategy had an r-squared of 0.80 or greater relative to the style benchmark for a three-year period. Moreover, the strategy had an upside market capture over 100 and a downside market capture less than 100 relative to the style benchmark. The top ten ratios of Upside Capture Ratio over Downside Capture Ratio become the PSN Bull & Bear Masters. QSV Quality Value Midcap also received a Top Gun 2-Star and 3-Star rating, meaning this product had one of the top ten returns for the one-year and three-year periods in the Mid Value Universe.

 

QSV’s Select Value strategy was named Top Gun 2-Star rating, noting its top ten returns for the one-year period in the Small-Mid Value Universe.

 

QSV manages the Quality Value Midcap and Select Value strategies, and its Quality Value Smallcap strategy, with the objective to reward clients with performance that is above it benchmarks and peers over a full market cycle with less volatility. The sole focus of its partners is to invest alongside clients in small and mid-cap businesses it believes can sustain high returns on invested capital through durable competitive advantages. Markets currently present investors with high levels of uncertainty and QSV believes that selectively owning durable businesses purchased at reasonable valuations will be key to preserving and growing wealth.

 

“Congratulations to QSV Equity Investors for being recognized as a PSN Top Gun,” said Ryan Nauman, Market Strategist at Informa Financial Intelligence’s Zephyr. “This highly esteemed designation allows us to recognize success, excellence and performance of leading investment managers each quarter.”

 

The complete list of PSN Top Guns and an overview of the methodology can be located on https://psn.fi.informais.com/

 

For more details on the methodology behind the PSN Top Guns Rankings or to purchase PSN Top Guns Reports, contact Margaret Tobiasen at Margaret.tobiasen@informa.com.

 

For more details on the specific performance and characteristics of QSV’s strategies, including a fully GIPS compliant presentation, please contact Dave Mertens at dmertens@ballastequity.com.

 

About QSV Equity Investors, LLC

QSV Equity Management is an employee-owned asset management firm that invests alongside its clients in high conviction portfolios of quality small and mid-capitalization businesses. QSV manages these portfolios of publicly traded companies for individuals, family offices and institutions. Based in Oakbrook Terrace, Illinois, QSV was founded in 2016 by Jeff Kautz and Randy Hughes, investment professionals who previously held senior roles at Perkins Investment Management and have invested together for over 20 years. More information may be found at www.qsvequityinvestors.com.

 

About Informa Financial Intelligence’s Zephyr

Financial Intelligence, part of the Informa Intelligence Division of Informa plc, is a leading provider of products and services helping financial institutions around the world cut through the noise and take decisive action. Informa Financial Intelligence’s solutions provide unparalleled insight into market opportunity, competitive performance and customer segment behavioral patterns and performance through specialized industry research, intelligence, and insight. IFI’s Zephyr portfolio supports asset allocation, investment analysis, portfolio construction, and client communications that combine to help advisors and portfolio managers retain and grow client relationships. For more information about IFI, visit https://financialintelligence.informa.com. For more information about Zephyr’s PSN Separately Managed Accounts data, visit https://financialintelligence.informa.com/products-and-services/data-analysis-and-tools/psn-sma.

 

QSV Quality Value Midcap honored with Bull & Bear Master Recognition

TOP GUNS PSN MID CAP VALUE UNIVERSE PERIOD ENDING JUNE 30, 2020

Criteria: The PSN universes were created using the information collected through the PSN investment manager questionnaire and use only gross of fee returns. Mutual fund and commingled fund products are not included in the universe. PSN Top Guns investment managers must claim that they are GIPS compliant. Products must have an r-squared of 0.80 or greater relative to the style benchmark for the three-year period ending JUNE 30, 2020. Moreover, products must have an upside market capture over 100 and a downside market capture less than 100 relative to the style benchmark. The top ten ratios of Upside Capture Ratio over Downside Capture Ratio become the PSN Bull & Bear Masters. 

Upside Market Capture Ratio – The Up Market Capture Ratio measures the manager’s performance in up markets relative to the performance of the market (index) itself. An up market is defined as any period (quarter) where the market’s return is greater than or equal to zero. The higher the Up Market Capture Ratio, the better the manager grew capital during a market expansion. A value of 110 suggests that a manager’s gain was 110% of the market’s gain when the market was up. 

Downside Market Capture Ratio – measures the manager’s performance in down markets relative to the performance of the market (index) itself. A down market is defined as any period (quarter) where the market’s return is less than zero. The lower the Down Market Capture Ratio, the better the manager protected capital during a market decline. A value of 90 suggests that a manager’s losses were only 90% of the market’s loss when the market was down. 

The content of PSN Top Guns is intended for use by qualified investment professionals. Please consult with an investment professional before making any investment decisions using content or implied content from PSN Top Guns. 

All Rights Reserved. PSN Top Guns is powered by PSN. PSN is an investment manager database and is a division of Informa Financial Intelligence. No part of PSN Top Guns may be reproduced in any form or by any means, electronic, mechanical, photocopying, or otherwise without the prior written permission of Informa Financial Intelligence. 

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(*) Style Benchmark
The PSN Mid Cap Value universe is comprised of 110 firms and 143 products

 

June 15, 2020 Oakbrook Terrace, IL – QSV Equity Investors Hires Operations and Compliance Leader

Industry veteran to reunite with small and mid-cap specialists

Oakbrook Terrace, Illinois – June 15, 2020: QSV Equity Investors is pleased to announce that Josh Freedman has joined the firm as Partner and Chief Operating Officer. Freedman will also assume the role of Chief Compliance Officer for QSV. Josh has more than 25 years of industry experience and was most recently Chief Operating Officer of Elk Creek Partners. Roles prior to Elk Creek included serving as Partner at Platte River Capital and Research Analyst at Three Peaks Capital.

“Josh is an important addition to QSV as we build operational and compliance expertise to support our service to clients,” stated QSV CEO Jeff Kautz. Kautz added, “Josh has considerable experience in operations, compliance and investment research and is uniquely qualified to contribute to the success of our business.”

QSV was founded in 2016 by two veterans of small and mid-cap stock fund management, Jeff Kautz and Randy Hughes. Kautz was previously CEO and Chief Investment Officer of Perkins Investment Management in Chicago. Hughes served as Perkins’ Director of Research and Analytics. Kautz also served as the Co-Manager of the Janus Henderson Mid Cap Value Fund and the Janus Henderson Value Plus Income Fund. Kautz and Hughes have managed funds together for more than twenty years.

“Strong culture, investment excellence and exceptional client service are critical in building a strong investment business,” Freedman noted, adding “I have worked with each of QSV’s partners earlier in my career and am confident we have the right people and skills to build a successful firm.”

About QSV Equity Investors

QSV Equity Investors is an employee-owned asset management firm that invests alongside its clients in high conviction portfolios of quality small and mid-capitalization businesses. QSV manages these portfolios of publicly traded companies for individuals, family offices and institutions. Based in Oakbrook Terrace, Illinois, QSV was founded in 2016 by Jeff Kautz and Randy Hughes, investment professionals who previously held senior roles at Perkins Investment Management and have invested together for over 20 years. More information may be found at www.qsvequityinvestors.com.

December 9, 2019, Oakbrook Terrace, IL – QSV Equity Investors Adds Strategies to Schwab Managed Account Marketplace®

Former Perkins Investment Leaders Deliver Small and Mid-Cap Investment Solutions to Advisors

Oakbrook Terrace, Illinois – December 9, 2019:  QSV Equity Investors is pleased to announce that its three U.S. equity strategies are now available on the Schwab Managed Account Marketplace®.  Managed Account Marketplace® allows advisors to negotiate directly with their preferred money managers while benefiting from the brokerage and custody services of Charles Schwab.  QSV strategies now available at Schwab are Quality Value Smallcap, Quality Value Midcap and Select Value.

“QSV knows the value that registered investment advisors add in serving their clients.  It is important to us to have our Quality Value strategies available at Charles Schwab, where many independent advisors with whom we partner custody their client accounts,” stated Dave Mertens, Partner and Head of Business Development.

QSV was founded in 2016 by two veterans of small and mid-cap stock fund management, Jeff Kautz and Randy Hughes.  Kautz was previously CEO and Chief Investment Officer of Perkins Investment Management in Chicago.  Hughes served as Perkins’ Director of Research and Analytics.  Kautz also served as the Co-Manager of the Janus Henderson Mid Cap Value Fund and the Janus Henderson Value Plus Income Fund.  Kautz and Hughes have managed funds together for more than twenty years. “Randy and I have a long history of investing together on behalf of families and institutions,” stated Ballast co-founder Jeff Kautz.  Kautz added “offering these services through Schwab, where more than 7500 advisors do business, is an important step in Ballast’s growth.”

About QSV Equity Investors

QSV Equity Investors is a registered investment advisor headquartered in Oakbrook Terrace, Illinois.  The firm was founded in 2016 to serve investors seeking ownership of high conviction portfolios of quality small and mid-capitalization businesses.  QSV manages these portfolios of publicly traded companies for individuals, family offices and institutions.  QSV, an independent, employee-owned firm, is led by experienced professionals who passionately invest alongside their clients.  More information may be found at www.qsvequityinvestors.com.

July 17, 2019, Oakbrook Terrace, IL – QSV Equity Investors Celebrates 3rd Anniversary of Quality Value Midcap Strategy

Former Perkins Investment Leaders Reach Important Milestone in Serving Clients

Oakbrook Terrace, Illinois – July 17, 2019: QSV Equity Investors is pleased to announce the third anniversary of its Quality Value Midcap Strategy on June 30, 2019. Passing the three-year anniversary provides a proof statement for prospective investors as they gauge the effectiveness of the firm in adding value through the management of U.S. mid cap stock portfolios.

QSV was founded in 2016 by two veterans of small and mid-cap stock fund management, Jeff Kautz and Randy Hughes. Kautz was previously CEO and Chief Investment Officer of Perkins Investment Management in Chicago. Hughes served as Perkins’ Director of Research and Analytics. Kautz also served as the Co-Manager of the Janus Henderson Mid Cap Value Fund and the Janus Henderson Value Plus Income Fund. Kautz and Hughes have managed funds together for more than twenty years.
“Randy and I have a long history of investing together on behalf of families, institutional investors and mutual fund shareholders,” stated QSV co-founder Jeff Kautz. Kautz added “our mission is to deliver a smoother ride for our clients in good markets and bad; to-date, we have been able to deliver on that commitment.” Noted co-founder Randy Hughes, “this three-year anniversary is a meaningful milestone. More importantly, it serves as the foundation for us to continue to refine our craft and assist our clients in meeting their financial goals.”

About QSV Equity Investors

QSV Equity Investors is a registered investment advisor headquartered in Oakbrook Terrace, Illinois. The firm was founded in 2016 to serve investors seeking ownership of high conviction portfolios of quality small and mid-capitalization businesses. QSV manages these portfolios of publicly-traded companies for individuals, family offices and institutions. QSV, an independent, employee-owned firm, is led by experienced professionals who passionately invest alongside their clients. More information may be found at www.qsvequityinvestors.com.

March 25, 2019 Oakbrook Terrace, IL -QSV Equity Management Appoints Business Development Professional

Former Perkins Investment Leaders Aim to Grow Firm’s Assets Under Management

Oakbrook Terrace, Illinois – March 25, 2019: QSV Equity Investors announced today the hiring of David Mertens as Partner and Head of Business Development.

Mertens joins the firm with over 35 years of investment industry experience. From 2002-2017, Mertens was Managing Director of Jensen Investment Management in Lake Oswego, Oregon. Prior to that he held the roles of Senior Vice President of Berger Financial Group, LLC and President of Berger Distributors, LLC in Denver, Colorado. He currently serves as an Independent Trustee for the Advisors Series Trust.

Mr. Mertens joins QSV as the firm approaches the third anniversary of its founding. QSV was launched in 2016 by two veterans of small and mid-cap stock fund management, Jeff Kautz and Randy Hughes. Kautz was previously CEO and Chief Investment Officer of Perkins Investment Management in Chicago; Hughes served as Perkins’ Director of Research. The two have managed funds together for more than twenty years.

“Twenty years ago, I had the pleasure to work with Jeff and Randy as we grew what became the Janus Perkins Small and Mid Cap Value Funds,” said Dave Mertens. He continued that “their diligence as investors has grown and their passion for delivering results to their clients is undiminished.”

“Randy and I are focused on investment research and on building successful investment portfolios,” stated Jeff Kautz. “Adding Dave to our team ensures that we can focus on our strengths while he builds bridges to current and new clients.”

About QSV Equity Investors

QSV Equity Management is a registered investment advisor headquartered in Oakbrook Terrace, Illinois. The firm was founded in 2016 to serve investors seeking ownership of high conviction portfolios of quality small and mid-capitalization businesses. QSV manages these portfolios of publicly-traded companies for individuals, family offices and institutions. QSV, an independent, employee-owned firm, is led by experienced professionals who passionately invest alongside their clients.

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