Investment Solutions

Mid Cap Equity Strategy

The objective of the Strategy is to generate alpha over a full market cycle by investing in diversified group of equities with market capitalizations between $1 billion and $10 billion at the time of purchase. The majority of portfolio holdings are domestic securities, but foreign securities may be included.

Management Approach: Team
Benchmark: S&P MidCap 400® Index
Assets Under Management: $132.65 million*
Strategy Inception: January 2003

Fact Sheet: 1Q22 Mid Cap Equity

*as of 03/31/22

Typical Portfolio Attributes
Market Cap Range$1 - $10 billion
Number of Holdings30 - 50
Position Sizes1 - 5%
Maximum Sector Weightings
Relative to the Benchmark
No formal restrictions
Cash Levels< 5%
Portfolio ManagerTeam managed

Data subject to change.

Annualized Performance (%)

for period ended 03/31/22
 1 Year3 Year5 Year7 Year10 YearSince
Mid Cap Equity Composite (Gross)6.1015.1511.8810.1911.8412.38
Mid Cap Equity Composite (Gross)5.0314.0910.939.3411.0211.38
Mid Cap Equity Composite (Gross)4.5914.1411.1010.2012.2011.77

Calendar Performance (%)

for period ended 03/31/22
Mid Cap Equity Strategy Composite (Gross)-3.9524.6616.8220.72-8.7716.02
Mid Cap Equity Strategy Composite (Net)-4.2023.4315.7119.85-9.4715.19
S&P MidCap 400® Index-4.8824.7613.6526.21-11.1016.26


The Mid Cap Equity Strategy outperformed its benchmark in the quarter due security selection. When making investment decisions, we seek to own good businesses at good prices. Our sector allocations are byproducts of the businesses we own. We comment on those companies that have the most significant impact on estimated security selection.

Among the companies positively impacting security selection:

CF Industries Holdings, Inc., is a leading global manufacturer and distributor of nitrogen products, primarily fertilizer. Its nitrogen products are upgraded from ammonia and include granular urea, urea ammonium nitrate and ammonium nitrate. Manufacturing facilities in the United States, Canada, and the United Kingdom are supported by extensive storage, transportation, and distribution capabilities. Shares benefitted from additional upward pressure on fertilizer prices, which accelerated following Russia’s invasion of Ukraine. We used this as an opportunity to trim our position in the strategy. We believe CF Industries is well positioned as the low-cost leader with access to low-cost natural gas and to the largest end market – corn.

CarGurus, Inc. seeks to be the single best platform for consumers and dealers to buy and sell vehicles. Its marketplace has the largest audience of potential buyers and most dealer inventory. It has built or in the process of building end to end digitally enabled transaction capabilities including CarOffers, for dealer wholesale, Instant Max Cash Offer, for consumers to sell vehicles at the highest bid from a national network of dealers, and digital retail which allows consumers to buy directly from dealers. Quarterly results indicated durability of the core dealer listings subscription business despite low levels of inventory. Additionally, the CarOffers business has continued to quickly scale profitably. We see a full set of digitally enabled end-to-end transaction capabilities to support dealers and consumers that we expect to scale quickly and profitably. These capabilities are differentiated by its longstanding proprietary data sets including Instant Market Value, Dealer Rating, and Deal Rating. Also, the digital wholesale Buying Matrix technology allows for instant transactions, and Instant Max Cash Offer collects competing dealer bids for consumer automobiles. We also like the scalable low capital intensity approach that does not invest in inventory or refurbishing centers.

Corcept Therapeutics Incorporated, develops drugs that modulate the stress hormone cortisol. Korlym was the first drug approved to treat Cushing’s Syndrome (CS), which is caused by hypercortisolism. Other drugs are being developed to treat solid tumor cancer, weight gain induced by antipsychotic medicines, and an advanced form of non-alcoholic fatty liver disease. The midpoint of full year 2022 revenue guidance implies over 13% growth as patients can get in front of physicians and the expanded sales force gains traction. It also announced detailed plans to begin a phase III trial in ovarian cancer. We see potential in its maturing and broadening pipeline. For example, in CS, Relacorilant has demonstrated a much-improved side effect profile. It is being studied in two phase III trials for CS that would expand the addressable market. Additionally, plans are also being made for a phase III study of Relacorilant in ovarian cancer.

Supernus Pharmaceuticals, Inc. develops and commercializes products for the treatment of central nervous system diseases. It developed, and currently markets, extended- release formulations that significantly lower the side effects of drugs approved to treat epilepsy and prevent migraines. On February 22nd, the Food and Drug Administration (FDA) provided notification that its resubmission for its apomorphine infusion device (SPN-830) used to treat Parkinson’s disease is considered a standard review and was given a target action date of early October this year. We believe its differentiated non-stimulative attention deficit hyperactivity disorder (ADHD) medicine, Qelbree, is underappreciated and see it gaining market share of non-stimulants, stimulants, and it’s awaiting an upcoming target action date decision for FDA approval in adults. We also see opportunities from acquired assets to treat Parkinson’s disease including GOCOVRI, used to treat on and off episodes in Parkinson’s and SPN-830, the apomorphine infusion device.

AECOM is the second largest general architectural and engineering design firm in the world. It delivers services throughout the project lifecycle including fee-based planning, consulting, architectural and engineering design services. The transition to a capital-light business model continued to provide better financial performance for the quarter as operating margins increased 60 basis points to 13.7% with a strong conversion of earnings to cash flow used for share repurchases. New bookings of $3.6 billion set a record and a book-to-burn ratio of 1.4 for the Americas and 1.2 across the global business resulted in the total backlog growing. Its plans to exit Russia, will have minimal financial impact. It completed the transition to lower risk professional services at higher more stable margins. Its strong cash flows are expected to double from 2020 to 2024 and to be used for share repurchases.

Among the companies negatively impacting security selection:

Western Digital Corporation is a leading developer, manufacturer, and provider of data storage devices including flash based solid-state drives (SSDs) and hard-disk drives (HDDs).
Despite supply chain challenges revenues were ahead of guidance and, gross margins were in line. Cloud revenue continued to be strong with year-over-year growth of 89% and represented 40% of total revenue. Supply chain challenges will persist throughout calendar year 2022 resulting in guidance that was below expectations. Longer term, we believe its shares do not reflect the value of the SSD business, a joint venture with Kioxia. Although there are challenges to be resolved, value could be unlocked either through a Kioxia initial public offering or Western Digital purchasing Kioxia outright.

TreeHouse Foods, Inc. is the largest manufacturer of private label foods in North America seeking to make high quality food and beverages affordable to all. Its two business segments are meal preparation and snacking & beverages with most sales in the retail grocery channel. Treehouse originally announced the pursuit of strategic alternatives on November 8th, 2021, and provided an update on March 14th 2022. The board determined the best strategy to unlock shareholder value at this time is to focus on building leadership and depth in its faster growth Snacking & Beverages business and continue to pursue divestitures of its Meal Preparation business. While the strategic focus makes sense, the shares were pressured by a decision to not pursue the sale of the whole company at this time. We see room for private label’s share of the grocery cart to increase, especially when compared to other developed countries. We expect it’s focus on quality, taste and ingredients should serve as a catalyst in consumers seeing more value in its products.

American Eagle Outfitters, Inc. is a multi-channel retailer with two distinct brands: AE and Aerie. It specializes in apparel, active wear, intimates, and swimwear among other things and operates over 1,000 stores and licenses over 200 additional stores. Quarterly revenue, operating income, and adjusted earnings per share set records with strong demand, lower promotional activity, and average transaction value doubling. Aerie posted its 29th consecutive quarter of double-digit growth, and the AE Brand was up 11% year-over-year. However, concerns about elevated costs, supply chain strains and margin durability weighed on the shares despite it raising 2023 financial targets, which now includes $800 million in operating income. American Eagle leverages its flexible real estate lease terms to migrate the store portfolio to more profitable models. An example is closing mall locations in favor of standalone stores. Additionally, it has grown and integrated its digital presence with the bricks and mortar stores creating an attractive omnichannel experience. We see the Aerie Brand growing strongly and the slower growing AE Brand providing stability.

Axos Financial, Inc., is a bank born on the internet without brick-and-mortar offices leading to lower expenses than competitors. Quarterly results were strong with double digit growth in loan origination, net income, and earnings per share and net interest margins exceeding the high end of its target. It appears the market weighed on the shares due to its premium to book value multiple, which we feel is warranted due to its low-cost model. Axos expects to continue diversifying its earnings stream and to add more products and services to cross sell. Its high service, branchless business model gives the company a distinct cost advantage; and its rebranding brings its businesses under one umbrella.

Westport Fuel Systems Inc. produces natural gas engines and fuel system components for on and off-highway commercial vehicles as well as passenger automobiles. Its technologies include High Pressure Direct Injection (HPDI) and spark ignition technology shared as part of a joint venture with Cummins Inc. Russia’s invasion of Ukraine led to significantly higher natural gas prices in Europe, its core market to replace diesel engines with engines that run on natural gas. Alternatively, in the United States, diesel prices increased substantially while natural gas prices remained relatively stable. If this relationship persists it may lead to a positive impact on the U.S. business. We believe the company is well positioned to play a key role enabling the utilization of cheaper cleaner natural gas for the purpose of transportation.

We traded in the following companies during the quarter unless mentioned above:

We sold Aerojet Rocketdyne Holdings, Inc. which makes rocket boosters for the Department of Defense (DoD), the National Aeronautics and Space Administration (NASA) from the strategy. Its merger with Lockheed Martin was terminated following the Federal Trade Commission decision to sue to block the deal. The DoD, while initially in favor of the deal decided to not stand in the FTC’s way.


Performance Attribution (%)

for quarter ended 03/31/22
Consumer Discretionary0.57-0.340.23
Consumer Staples-0.02-0.55-0.56
Information Technology-0.24-0.71-0.95
Real Estate-0.210.00-0.21
Communication Services0.080.830.92

Top Ten Holdings

for quarter ended 03/31/22
 % of Portfolio
AMN Healthcare Services, Inc.4.77
CarGurus, Inc.4.65
CF Industries Holdings, Inc.4.44
FTI Consulting, Inc.4.30
Tetra Tech, Inc.3.95
F5 Networks, Inc.3.71
Civitas Resources, Inc.3.67
Corcept Therapeutics Inc3.63

Top Contributors (%)

for quarter ended 03/31/22
 Average WeightContribution
CF Industries Holdings, Inc.5.182.38
CarGurus, Inc.4.151.09
FMC Corporation2.440.49
Corcept Therapeutics Inc3.290.45
Supernus Pharmaceuticals, Inc.3.000.33

Top Detractors (%)

for quarter ended 03/31/22
 Average WeightContribution
American Eagle Outfitters, Inc.2.80-0.93
Western Digital Corporation3.69-0.88
AMN Healthcare Services, Inc.4.71-0.69
Treehouse Foods, Inc.3.04-0.62
American Axle & Manufacturing Holdings, Inc.3.30-0.56
Attribution, contributors and detractors are pulled from the Mid Cap standalone composite due to a system limitation.

Composite Characteristics

for period ended 03/31/22
Price/Earnings Ratio18.6217.91
Price/Book Value Ratio7.162.52
Dividend Yield (%)0.981.43
Weighted Average Market Cap7.187.03
3 Year Annualized Tracking Error (%)8.53N/A
3 Year Annualized Standard Deviation (%)21.3021.73
3 Year Alpha1.24N/A
3 Year Beta0.91N/A
3 Year Information Ratio0.12N/A
5 Year Annualized Tracking Error (%)7.34N/A
5 Year Annualized Standard Deviation (%)18.8719.35
5 Year Alpha0.72N/A
5 Year Beta0.90N/A
5 Year Information Ratio0.11N/A

Sector Weights

for period ended 03/31/22
Consumer Discretionary7.4513.92
Consumer Staples2.373.58
Information Technology21.6314.07
Real Estate0.0010.24
Communication Services7.461.71

Sources for all data are Stewart Capital Advisors and Bloomberg.

Past performance is not indicative of future results. There is no guarantee a specific investment strategy will be successful.

Portfolio attributes, sector weightings, and holdings represent individual equity holdings excluding cash, pooled investments, and other non-equity holdings and may change without notice.

Performance attribution does not incorporate the effects of cash, unclassified securities or expense. Positions smaller than 0.05% round to 0.0%. Total may not match stated returns due to rounding effects of cash, and timing of trades.

Top contributors/detractors = average weight x total return during the time period.

The contributors/detractors listed do not represent all securities purchased or sold for our clients. To obtain a list showing the contribution of each holding that contributed to overall performance during the quarter and the calculation methodology, please call 855.783.9227.

S&P MidCap 400® Index is an unmanaged index that provides investors with a benchmark for mid-sized companies. The Index covers over 7% of the total U.S. equity market, and seeks to remain an accurate measure of mid-sized companies, reflecting the risk and return characteristics of the broader mid-cap universe on an on-going basis.

The information contained herein does not constitute a solicitation or recommendation by Stewart Capital Advisors, LLC (SCA). The views expressed by the portfolio managers are as of the quarter-end specified. The information may contain opinions or forward-looking statements that are subject to change at any time without notice, and is not intended to predict the performance of any individual security, market sector, or portfolio. No assurance can be given that these opinions or statements will prove accurate or profitable. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings.

This information is solely for supplemental information purposes, intended for institutional investors, and may not be provided unless directly accompanied by the fully compliant Global Investment Standards (GIPS) disclosure.