The ESG Process at Kennedy:

How We Define ESG: Environmental: Prioritize companies that leverage a key environmental advantage vs. their peers. Significantly lower carbon footprint vs. benchmark. Social: Emphasize companies that promote societal benefits. Client-driven restrictions on companies involved with controversial products or services. Governance: Focus on board structure and diversity, compensation, shareholder rights, audit & accounting risk.

Strategy Highlights

  • The ESG SMID Cap portfolios are benchmarked to the Russell 2500™ Index.
  • ESG variables are considered from both a divestment and investment perspective, and ESG considerations are integrated into the fundamental analysis process.
  • Portfolios typically demonstrate an 80%+ reduction in carbon emissions vs. the benchmark.
  • Portfolios are actively managed using a bottom-up investment approach and best of breed data for ESG assessment – not 3rd party scoring.
  • Portfolios generally demonstrate growth characteristics at or above those of the Russell 2500™ benchmark, with favorable relative valuations.
  • Portfolios are typically fully invested, generally holding less than 5% cash; the Portfolio Manager does not engage in market timing.
  • Our approach seeks to minimize risk through diversification. Portfolios generally hold between 80 to 120 stocks, with no one stock typically exceeding 5% of a total portfolio.

Objective The objective of the ESG SMID Cap strategy is to consistently outperform the Russell 2500™ Index over a complete market cycle, while emphasizing Environmental, Social, and Governance characteristics as part of the security selection process. Portfolios are comprised of a combination of SMID cap growth and SMID cap value stocks with attractive ESG profiles, resulting in portfolios with characteristics in-line with those of the Russell 2500™ benchmark. ESG criteria are utilized to identify securities for both divestment and investment.

Click here to view the current ESG SMID Cap Strategy Commentary.

Click here to view the annual ESG SMID Cap Strategy Impact Report.

ESG SMID Cap | Annualized Returns as of 3/31/2024

† Not Annualized. Source: Advent APX.

Quarterly Fact Sheet

Download a detailed quarterly strategy fact sheet (pdf). Download PDF

Although the statements of fact and data in this report have been obtained from, and are based upon, sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.  All opinions included in this report constitute the Firm’s judgment as of the date of this report and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  A complete list of all securities recommended by KCM in the preceding year, a fully compliant GIPS composite report, and the list of composite descriptions are available upon request from KCM at 10829 Olive Blvd., Suite 100. St. Louis, MO, 63141.

Kennedy Capital Management LLC (“KCM”) is a Delaware limited liability company headquartered in Missouri. KCM is registered as an investment adviser with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration with the SEC does not imply any level of skill or training.  Clients of the Firm include U.S. corporations, pension and profit sharing funds, colleges and universities, trusts, not-for-profit organizations, foundations, and individuals.  KCM claims compliance with the Global Investment Performance Standards (GIPS®).  GIPS® is a registered trademark of CFA Institute.  CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.  (GIPS®) are a set of standardized, industry-wide ethical principles that provide investment firms with guidance on calculating and reporting their investment results to prospective clients to ensure fair representation and full disclosure of an investment firm’s performance history.

ESG SMID Cap Composite is invested in securities of value and growth companies that have a market capitalization ranging from small cap to midcap, generally reflective of the Russell 2500™ Index. The Investment Manager places an additional emphasis on Environmental, Social, and Governance criteria as part of the portfolio construction and stock selection process. We generally look for value companies that trade at an attractive relative valuation on a price-to-earnings and price-to-cash flow basis, and growth companies that have opportunities to grow assets at returns above the cost of capital. The U.S. Dollar is the currency used to express performance.

Composite specific data provided within this presentation has been calculated from accounts that are discretionary as defined in this paragraph.  The assets shown are derived only from discretionary accounts.  Non-discretionary accounts, as defined by KCM, are accounts that are not included in the composite due to one or any combination of the following criteria: there were significant cash inflows or outflows within the account; the account’s asset level did not meet the minimum requirement to remain in the composite; the account assets are managed by others using our non-discretionary model.  The temporary removal of such an account occurs at the beginning of the month and the account re-enters the composite the month after the criteria has been met.

Returns are presented gross and net of investment advisory fees and include the reinvestment of all income.  Gross of fee returns reflect the deduction of transaction costs and custodian fees but do not reflect the deduction of investment advisory fees.  Net of fee performance is calculated using gross returns less the actual applicable annual management fee applied monthly.  Past performance is not indicative of future results.  A client’s return will be reduced by the advisory fees as described in Form ADV Part 2A and other expenses incurred by the account.  For example, an annual advisory fee of 1% compounded quarterly over 10 years will reduce a gross 14.44% annual return to a net 13.32% annual return.  Form ADV Part 2A is available upon request.

The performance figures reported herein are unaudited, may be based upon information obtained via electronic data sources (“feeds”) and may be subject to change.  Data feeds from many of KCM clients’ selected custodians are obtained through third party sources and are used to compare custodial data to KCM’s client account records as frequently as daily.  Monthly, KCM reviews clients’ account holdings along with cash and share quantities against the custodial statements.  In some instances, variances may exist between final audited custodial information and the information KCM obtains via such data feeds.  Generally, any such variances are researched and reconciled within thirty days of the period end.

Russell Investment Group is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto.  The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited.  This is a presentation of Kennedy Capital Management.  Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in Kennedy Capital Management’s presentation thereof.

The Russell 2500™ Index measures the performance of the small to mid-cap segment of the U.S. equity universe, commonly referred to as “smid” cap. The Russell 2500™ Index is a subset of the Russell 3000® Index. It includes approximately 2500 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2500™ Index is constructed to provide a comprehensive and unbiased barometer for the small to mid-cap segment. The Index is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small to mid-cap opportunity set.

The Russell 2500™ Index are used as the benchmark.  The Indexes are unmanaged and represents total returns including reinvestment of dividends.  The benchmarks are used for comparative purposes only and generally reflects the comparable risk or investment style of the Firm’s strategy.  The investment portfolios underlying the Indexes are different from the investments in the portfolios managed by the Firm.  Certain accounts may also use other benchmarks not listed in the GIPS composite report.  The Verification and Performance Examination Report does not cover the benchmark returns included in the GIPS composite report.  Investors cannot invest directly in an Index.

Carbon Emissions (Scope1 Wtd. Avg., mt.) is a weighted average of companies’ reported or estimated Scope 1 greenhouse gas emissions measured in metric tons. Scope 1 emissions are those from sources owned or controlled by the company. The assessment is sourced from MSCI’s Carbon Metrics database. Companies not included in the MSCI Carbon Metrics database are not included in the weighted average calculation for the portfolio or the benchmark. The portfolio is assessed quarterly compared to the weighted average emissions (reported or estimated as sourced from the MSCI Carbon Metrics database) of the Russell 2500™ index. The portfolio’s weighted average emissions aims to be at least 80% lower than that of the index.

The Governance Score refers to the ISS Governance QualityScore, which is derived from publicly disclosed data on a company’s governance practices and for which a lower score is preferable. The Score is calculated as a weighted average for the portfolio and compared to the weighted average score for the Russell 2500™ index. Companies not included in the ISS Governance QualityScore database are not included in the weighted average calculation for the portfolio or the benchmark. The QualityScore provides an indication of relative governance quality supported by factor-level data. The portfolio’s weighted average QualityScore aims to be at least 15% lower (better) than that of the index. Companies receive an overall QualityScore and a score for each of four categories: Board Structure, Compensation/ Remuneration, Shareholder Rights, and Audit & Risk Oversight. A score in the 1st decile indicates relatively higher quality governance practices and relatively lower governance risk, and, conversely, a score in the 10th decile indicates relatively higher governance risk.

Christian McDonald, CFA®

Portfolio Manager

CHRISTIAN MCDONALD, CFA®, Portfolio Manager for the Micro Cap, ESG SMID Cap, and Small/Mid Cap Core strategies. Mr. McDonald joined KCM in November 2005 as a Research Analyst. Prior to joining KCM, Chris spent six years in various finance functions at The Boeing Company.  Mr. McDonald graduated summa cum laude with a B.S. in Finance and Operations Management from Washington University in St. Louis and earned an M.B.A. from the UCLA Anderson School of Business. Chris is a Fundamentals of Sustainability Accounting (FSA) Credential Holder.