With ESG becoming more important to our clients and their consultants, Yovanka Bylander wrote this white paper that encapsulates how TimesSquare considers ESG aspects in our investment process. In it, she shows how we are well-positioned to assess the ESG qualities of smaller companies in conjunction with our bottom-up fundamental analysis.
Later, Yovanka discussed TimesSquare’s thoughts on ESG and DEI in an interactive webinar.
At TimesSquare Capital, we do research on companies of all sizes. Over ten years ago we launched a strategy focused on all market cap sizes. Listen to Ken Duca describe his team’s strategy and how they build a concentrated growth portfolio.
Over the years, the Mid cap market niche has demonstrated attractive characteristics, however, it tends to be under-allocated. With its appealing risk/return characteristics along with a nice blend of growth and quality, we believe this space presents a compelling investment case and merits consideration for investors’ portfolio allocation.
Each year brings about challenges and opportunities for investors. Tony Rosenthal, lead PM for Mid Cap Growth, gives his take on investing in the current market environment.
From the depths of the market’s COVID-19 lows in March 2020, equities have shown significant gains. As vaccines became available and economic activity reaccelerated, the U.S. stock market climbed sharply. Market sentiment—or relief—was not the sole driver of recent returns. Companies have reported significant sales and earnings growth, outpacing expectations by wide margins in the most recent quarterly reporting season (Jefferies 2021). Looking forward, sales growth is expected to climb in 2021, as well as in 2022, across all the U.S. market’s size and style segments.
The ongoing economic recovery has been fueled by a number of factors including stimulus measures, the vaccine rollout, and pent-up demand. Consumers accumulated a significant amount of savings over the last year with some of this new-found wealth being unleashed on purchases of homes, vehicles, furniture, bicycles, and other big ticket items. Manufacturers have responded by raising production levels, though remain hampered by supply chain challenges and higher input costs. The first quarter’s earnings season was one of the best on record, especially for small caps, with companies beating forecasts by substantial margins.
Over the last two decades, emerging markets (EMs) have transformed considerably, with higher consumption driven by rising income, market reforms, and expanding capital markets. Once considered “followers”, entrepreneurs in EMs now use their technical capabilities to bring innovations across borders and transform businesses. One of the most significant achievements in the EM world over the last few decades has been the emergence and expansion of the middle class. With millions of people being lifted out of poverty each year, companies that cater to domestic demand have benefited from fast-growing incomes.
In many aspects of the world, what is bigger often gets more attention. That is also true for equities, where large capitalizations tend to be the proxies for the overall health and performance of markets. However, another market truism is that the overlooked often possess great value, if only because they have not been discovered by others. The case for looking further down the size spectrum to International Small Caps has been well explored, though we believe that International Micro Caps deserve more attention than they have received from investors.
While BRIC (Brazil, Russia, India, and China) countries have dominated headlines and are still an important source of growth for the world, the next generation of opportunities for growth and stock picking are in the frontier and smaller emerging markets (FEM). We believe that FEM countries are in the early innings of a rapid transformation. However, these countries continue to be overlooked by many investors, as these capital markets tend to be smaller and in earlier stages of growth than larger emerging market (EM) counterparts.
As an investment destination, the emerging markets have attracted capital over the past decades with their prospects for faster growth than in the developed markets. We believe that many of the trends propelling the emerging markets, such as spending on consumption and infrastructure, foretell their ongoing growth advantage over developed markets.
Global equities reacted strongly as COVID-19 continued to spread around the world. Price volatilities tripled, hitting multiyear highs as the market fell by more than -20% during the first quarter of 2020. During this sell-off, health care held up better than other MSCI World sectors. COVID-19 brought both challenges and opportunities to the health care industry.
A desire for Responsible Investments (RI) has gained significant traction in recent years across the investing community, accelerated somewhat by increased adoption of the Principles for Responsible Investment supported by the United Nations. Numerous institutional investment consultants have increased their focus on evaluating RI across asset classes, whether or not a given investment strategy is explicitly focused on RI. To TimesSquare, ESG becomes another component in our holistic evaluation of a company’s return and risk mosaic.
With help from technological advancements, the global health care industry has experienced explosive growth in the past few decades. While disruptive technologies have brought innovations and an increase in new drug applications, the volatile nature associated with high pass-or-fail risk of the sector merits a hedged approach to health care investing.
In the last decade, we have witnessed globalization and the growing interdependence among companies across the world. Globalization has broken down traditional competitive barriers, created integrated supply chains, and presented opportunities for small cap disruptors. A global small cap portfolio provides a unique manner to benefit from companies internationally and enables an investor to gain access to the world’s best in breed.