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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Baird Small/Mid Cap Growth Equity Fund 2023 Q4 Investor Letter | Buyside Digest

Back to Fund Profile (Baird Small/Mid Cap Growth Equity Fund)

Primary Source Intelligence • Q4 2023 Letter Analysis

Baird Small/Mid Cap Growth Equity Fund Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Baird Small/Mid Cap Growth Equity Fund. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

Annualized+9.13%

Positioning StanceConstructive

GeographyUS

Digest Analysis

Quick Take

"Baird Small/Mid Cap Growth underperformed in Q4 as speculative small caps rallied on rate cut expectations. The quality-focused strategy faced headwinds from market preference for highly-levered, lower-margin companies."

Executive Summary

Baird Small/Mid Cap Growth strategy returned 7.8% net in Q4 2023, underperforming the Russell 2500 Growth Index's 12.6% gain. The underperformance was driven by a sharp December rally in small, speculative, unprofitable stocks, particularly biotech where the fund is underweight. Lower-than-expected inflation data and Fed commentary suggesting potential 2024 rate cuts drove significant market movements, benefiting interest-rate-sensitive stocks. The portfolio faced headwinds as more highly-levered, lower-margin companies outperformed their quality-focused approach. Notable positive contributors included Insulet, which continued strong growth despite GLP-1 drug concerns, and housing-related stocks like Trex and Watsco. Detractors included Idex due to life sciences slowdown, Paylocity from reduced guidance, and several healthcare names facing company-specific challenges. The manager made portfolio adjustments, selling positions lacking long-term conviction including Generac and Chart Industries, while initiating new positions in Exlservice Holdings and Powerschool Holdings. Looking forward, they emphasize remaining diversified and focused on high-quality, profitable businesses given economic uncertainty.

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Institutional Meta Strategy

Meta Strategy Gauges

Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.

Signal Matrix

Market Conviction

62%

CautiousHigh

Moderate (62%)

The fund demonstrates moderate conviction through specific position sizing decisions, named holdings with clear rationales, and willingness to exit positions lacking long-term conviction. However, the diversified approach across 40+ positions and hedged language about economic scenarios prevents higher conviction scoring. Portfolio changes show decisiveness but within a broadly diversified framework.

Growth Outlook

38%

BearishBullish

Neutral (38%)

The manager expresses caution about economic scenarios, noting that soft landing is the least likely outcome post-Fed tightening cycle. While acknowledging resilient employment and slowing inflation, they emphasize low probability scenarios and the need for diversification, suggesting measured pessimism about market conditions.

Risk Appetite

0%

DefensiveAggressive

Defensive (0%)

Portfolio positioning appears balanced with selective additions and exits. The manager made several position changes but maintained diversified exposure across sectors. No clear directional bias toward increasing or decreasing risk appetite is evident from the positioning described.

Capital Deployment

5%

De-riskingDeploying

De-risking (5%)

Capital deployment appears roughly neutral with rotation activity - selling four positions while initiating three new ones. The manager describes selective adding to Clearwater Analytics and trimming Deckers, but no clear evidence of significant cash level changes or net deployment bias. Activity represents rotation rather than meaningful net deployment.

Forward Guidance

38%

CautiousExpansionary

Neutral (38%)

Forward guidance emphasizes caution and diversification rather than aggressive deployment. The manager focuses on defensive positioning for uncertain economic paths ahead, suggesting a cautious approach to future capital allocation rather than aggressive deployment bias.

Language Signal

45%

BearishBullish

Balanced (45%)

Language contains more risk-oriented terms like threading needles, low probability scenarios, and economic uncertainty, but is balanced with some positive language about quality businesses and selective opportunities. Net slightly negative directional language.

Perceived Risk

45%

Low RiskElevated

Moderate Risk (45%)

The manager acknowledges moderate risk through discussion of economic uncertainty and low probability of soft landing scenarios. However, risk discussion is not central to the letter and focuses more on standard macro concerns rather than systemic threats. Risk perception is present but not elevated.

Opportunity Density

55%

ScarceAbundant

Selective (55%)

The manager demonstrates selective opportunity identification through three new position initiations and specific rationales for each. While acknowledging challenging market conditions for their style, they continue to find compelling ideas in analytics, IT services, and educational software, suggesting moderate opportunity density.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

The strategy demonstrates multi-year investment horizon through focus on high-quality, profitable businesses positioned for various economic scenarios. The manager's willingness to exit positions lacking long-term conviction and emphasis on businesses that can perform across cycles suggests a 2-4 year investment timeframe typical of growth equity strategies.