Listen to Chris Strom, Co-portfolio manager of the Mairs & Power Small Cap Fund, as he talks with Scott Howard, VP, Investor Relations Manager, on July 22, 2021 to provide an update on current economic and market conditions and their impact on the Mairs & Power Small Cap Fund.
The sectors that provided the largest contributions to the Mairs & Power’s Small Cap Fund’s second-quarter performance were Financials and Industrials. The biggest detractors year to date have been Energy and Consumer.
Overall, small cap valuations continue to look attractive across nearly every metric, including EBITDA and price-to-earnings. In addition, small cap stocks remain inexpensive, especially compared to large caps.
In Financials, the Fund has a significant weight in banks, which have provided major benefits to our performance this year. Banks have demonstrated the durability of their business model over the previous year by making it through the Covid-19 environment and maintaining very good capitalization. The prospects for loan growth over the coming years also are starting to drive some strong performance.
In Industrials, we have had several names that have performed well for us. One we’ll highlight is Raven, a company we've held for a number of years. In June, it was acquired by CNH Industrial for $2.1 billion. This was a roughly 50% premium to the stock price, which provided a notable boost to the Fund’s sector performance.
The market’s strongest-performing sectors year to date have been Energy and Consumer. These also have been sectors where we've been underweight. In fact, we sold our last remaining Energy position, in Core Labs, during the second quarter. Though this underweight has hurt Fund performance in 2021, the long-term competitive outlook for both the Energy and the Consumer sectors appears doubtful to us.
Individual Stocks: Detractors and Additions
CMC Materials has been a notable underperformer over the course of the past year. This is an Illinois-based semiconductor chemical manufacturer whose core businesses have been performing very well. But one of its ancillary businesses, which provides chemicals used in oil pipelines, has faced some headwinds. Overall, we like the company and have been adding to our position.
Another year-to-date detractor was Sleep Number, which performed well in the first quarter but sold off quite a bit in the second.
The Fund added three names in the second quarter:
- Cambium Networks, an Illinois-headquartered broadband networking infrastructure company that is benefiting from the buildout of rural broadband and 5G upgrades.
- Polaris, a Minnesota-based off-road vehicle manufacturer that recently put in place a new management team. We particularly like the company’s focus on R&D, which should help differentiate Polaris and its products in a competitive market.
- SkyWater Technology, a semiconductor manufacturer whose April IPO we participated in. SkyWater doesn’t compete with the leading-edge manufacturers based largely in Asia. Instead, it focuses on specialized niche end markets, notably industrial, aerospace and defense. It’s headquartered in Bloomington, Minnesota -- right in our backyard, which also makes the company very attractive to us. We’re excited by the many new opportunities and IPOs in the Technology sector that have come to market here in the Twin Cities in the last year.
Top 10 Fund Holdings (subject to change)
The statements and opinions expressed are those of the speakers and are as of the date of this call. All information is historical and not indicative of future results and subject to change.
EV (enterprise value) to sales is a valuation measure that compares the EV of a company to its annual sales.
EV (enterprise value) to EBITDA (earnings before interest, tax, depreciation, amortization) is a ratio used to determine the value of a company
P/E (price-to-earnings) ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings.
S&P 500 TR Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance as of the most recent month end is available by calling 800-304-7404. Click Here for standardized performance.