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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 Q3 Investor Letter | Buyside Digest

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

Primary Source Intelligence • Q3 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's small/mid-cap growth strategy underperformed in Q3 as GLP-1 drug developments hammered medical device holdings and rising rates pressured consumer names. The team added to oversold healthcare positions while reducing exposure to companies with weakening fundamentals."

Executive Summary

Baird's Small/Mid Cap Growth strategy declined 8.9% net in Q3 2023, underperforming the Russell 2500 Growth Index's 6.8% decline. The quarter was challenging as larger, more profitable companies outperformed while expensive, faster-growing names struggled. Healthcare holdings faced significant pressure from GLP-1 drug developments, with medical device companies like Insulet and Inspire Medical declining sharply on concerns about shrinking addressable markets for diabetes and sleep apnea treatments. The team added to Inspire, viewing the market reaction as overdone. Industrial holdings also struggled with companies like MasTec and Littlefuse reducing guidance due to spending delays and inventory issues. Technology saw mixed results with exits from ZoomInfo, DigitalOcean, and Sprout Social due to thesis changes or growth concerns. Bright spots included energy holdings Matador and ChampionX, financials like Kinsale and Clearwater Analytics, and materials with RBC Bearings benefiting from aerospace spending. Rising rates impacted consumer-facing holdings, particularly housing-related names. The team established a new position in BJ's Wholesale Club, citing strong member retention and growth prospects.

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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

68%

CautiousHigh

Moderate (68%)

The manager demonstrates moderate-high conviction through specific position sizing decisions, adding to Inspire Medical despite headwinds, establishing new positions like BJ's Wholesale Club with clear thesis, and making decisive exits from positions where thesis changed. The portfolio appears concentrated with named holdings and clear rationale for each move.

Growth Outlook

38%

BearishBullish

Neutral (38%)

The manager acknowledges challenging market conditions with rising rates and inflation concerns, but maintains a measured tone about working through temporary setbacks rather than expressing deep pessimism about markets.

Risk Appetite

10%

DefensiveAggressive

Defensive (10%)

The portfolio shows selective risk-taking with additions to oversold positions like Inspire Medical and new position in BJ's Wholesale Club, while also reducing exposure to weakening names, indicating a balanced but slightly constructive approach.

Capital Deployment

5%

De-riskingDeploying

De-risking (5%)

The quarter showed mixed deployment activity with new position in BJ's Wholesale Club and additions to Inspire, Matador, and ChampionX, offset by reductions in MasTec and Littlefuse and exits from ZoomInfo, DigitalOcean, and Sprout Social. Net activity appears roughly neutral with selective rotation.

Forward Guidance

0%

CautiousExpansionary

Cautious (0%)

The manager expects debates over monetary policy and economic outcomes to remain unresolved for several quarters, with no clear directional bias toward deployment or defensive positioning.

Language Signal

45%

BearishBullish

Balanced (45%)

Language includes more risk-focused terms like 'challenging,' 'struggled,' 'concerns,' and 'toll' than opportunity language, though balanced with some constructive positioning commentary.

Perceived Risk

55%

Low RiskElevated

Moderate Risk (55%)

The manager identifies specific risks including rising rates, inflation impact on consumers, and sector-specific challenges like GLP-1 drug effects on medical devices. Risk discussion is meaningful but not alarmist, focusing on identifiable headwinds rather than systemic threats.

Opportunity Density

45%

ScarceAbundant

Selective (45%)

The manager describes a challenging environment where they must be selective, working to 'take advantage of those situations where we believed the market misperceived risk,' suggesting opportunities exist but require careful selection rather than abundant choices.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

The strategy demonstrates multi-year thinking with statements like 'we are comfortable letting time and the anticipated continuation of strong fundamentals address concerns' for healthcare holdings and 'we believe their capital allocation acumen will play out over time' for Churchill Downs, indicating patience for thesis realization.