Q&A Series

Our ongoing Q&A series features Carillon Tower affiliate managers sharing their diverse investment philosophies and thoughts on the market.

Q&A with Patrick Dunkerley, CFA
Lead Portfolio Manager, Carillon Scout Mid Cap Fund

Scout Investments has been offering mid-cap products since 2006. The asset class represents an often-overlooked opportunity for investors. Investors may think they have the mid-cap space covered with a combination of large- and small-cap managers, but there is more to this asset class.

Why choose a mid-cap-only manager?

Mid-caps have outperformed their small- and large-cap peers since 1979. There are up to 300 mid-cap companies – roughly 40 percent of the Russell Midcap Index – that are uncovered by other asset classes. We refer to this as the “cap gap”: an overlooked space where investors may find opportunity. We also believe mid-cap companies offer the best risk/reward characteristics over time and are poised to continue their competitive performance.

PHILOSOPHY: How is your team uniquely qualified to handle this asset class?

Our team chemistry is a big plus. Co-portfolio managers Derek Smashey and John Indellicate have been with the Scout Mid Cap team since the firm's 2006 inception. Co-portfolio manager Jason Votruba and senior investment analyst Eric Chenoweth joined the team in 2013 and 2017, respectively. Scout’s unique disciplined investment process and flexible valuation approach can make us attractive to investors. We incorporate top-down macroeconomic and company-specific analysis with an emphasis on quality. We have a philosophy of letting our winners run when it’s to our clients’ advantage. Team members focus their research on specific sectors of the market. We spend time analyzing risk factors of the stocks we own, especially before quarterly earnings reports. This is another advantage of active management versus passive.

PROCESS: How does your team choose stocks?

Scout uses a “toolbox approach”: utilizing different tools to select stocks during bull and bear market cycles. The team incorporates a good understanding of the macroeconomic picture when positioning sector weights. Our bottom-up research checklist helps identify companies with good fundamentals. We buy stocks based on their fundamentals and quality characteristics while giving due consideration to the valuation. If their fundamentals weaken, that’s when we act decisively and sell.

MARKET OUTLOOK: How is your team handling the reemergence of market volatility?

We remain bullish on equities, but an increase in volatility is likely as the market adjusts to higher interest rates and trade tensions. From a sector point of view, we are sticking with investments in cyclical companies for now, with an emphasis on technology, financials — including banks and insurance companies that benefit from higher interest rates, materials, and energy as strong U.S. and global growth is lifting earnings. We expect equity markets to continue to rise but if the Federal Reserve turns more aggressive, credit conditions may turn bearish. In that case, our portfolio would become more defensively positioned.

ABOUT Scout Investments

Scout’s equity investment teams employ distinct investment philosophies and processes to pursue long-term capital appreciation objectives that are consistent with client goals. Our thoughtful approach to asset management extends to how we cultivate client relationships and to how we distribute strategies via separate accounts, commingled funds and mutual funds.

Learn more about our Carillon Scout Mid Cap Fund.


About Carillon Tower Advisers

Carillon Tower Advisers is a global asset-management firm supporting autonomous boutiques spanning investment disciplines and asset classes, each with a focus on risk-adjusted returns and alpha generation. We believe this lineup of institutional-class portfolio managers can help investors meet their long-term business and financial goals. Ultimately, this structure allows investment teams to focus on what they do best: managing portfolios.

Investing in mid-sized companies is based on the premise that relatively smaller companies will increase their earnings and grow into larger, more valuable companies. Historically, mid-cap stocks have experienced greater volatility than other equity asset classes, and they may be less liquid than larger cap stocks. Thus, relative to larger, more liquid stocks, investing in mid-cap stocks involves potentially greater volatility and risk. In addition, mid-cap stocks have experienced greater volatility than other classes of securities. Mid-cap stocks can also be less liquid than those of large companies, and illiquidity increases the potential for volatility. As with all equity investing, there is the risk that a company will not achieve its expected earnings results, or that an unexpected change in the market or within the company will occur, both of which may adversely affect investment results. The biggest risk of equity investing is that returns can fl uctuate and investors can lose money. Not every investment opportunity will meet all of the stringent investment criteria mentioned to the same degree. Trade-offs must be made, which is where experience and judgment play a key role. Accounts are invested at the discretion of the portfolio manager and may take up to 60 days to become fully invested. Past performance does not guarantee or indicate future results. The information presented is for a representative account and for illustrative purposes only and should not be used as the sole basis for an investment decision. Actual account holdings will vary depending on the size of an account, cash fl ows within an account, and restrictions on an account. *As represented by the Russell 3000® Index, the Russell 2000® Index and the Russell 1000® Index. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8 percent of the total market capitalization of the Russell 3000® Index. The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies. The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, which represents approximately 92 percent of the total market capitalization of the Russell 3000® Index. The Russell Top 200® Index measures the performance of the 200 largest companies in the Russell 3000® Index, which represents approximately 63% of the total market capitalization of the Russell 3000® Index. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.