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

May 2018

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?

There are up to 300 mid-cap companies – roughly two-thirds of the Russell Midcap Index – that may be uncovered by other asset classes.1 We refer to this as the “cap gap”: an overlooked space where investors may find opportunity. We believe mid-cap companies offer competitive risk/reward characteristics over time and may continue to offer compelling opportunities for investors. 

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 us seek 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.

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.

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.  

Learn more about the Carillon Scout Mid Cap Fund.

1As of 6/30/2018, according to Russell data, the market capitalization of the Russell Midcap® Index was $8.237 trillion. The top 300 largest companies of the Russell Midcap® Index had a market capitalization of $5.285, making up 64.3 percent or roughly two-thirds of the Russell Midcap® Index.

Please consider the investment objectives, risks, charges, and expenses of any fund carefully before investing. Call 1.800.421.4184 or your financial advisor for a prospectus, which contains this and other important information about the funds. Read the prospectus carefully before you invest or send money.

Past performance does not guarantee or indicate future results. The information presented is for illustrative purposes only and should not be used as the sole basis for an investment decision.

Risk considerations: Mid-cap and small-cap stocks may temporarily fall out of favor or perform poorly relative to other types of investments. While stocks of mid-cap companies may be slightly less volatile than those of small-cap companies, they still involve substantial risk.

Real Estate Investment Trusts (REITS) may be affected by economic conditions including credit risk, interest rate risk and other factors that affect property values, rents or occupancies of real estate.

Foreign investments present additional risks due to currency fluctuations, economic and political factors, government regulations, differences in accounting standards and other factors. Investments in emerging markets involve even greater risks. Groups of stocks, such as value and growth, go in and out of favor, which may cause certain funds to underperform other equity funds.

The Fund may, at times, experience higher-than-average portfolio turnover, which may generate significant taxable gains and increased trading expenses, which, in turn, may lower the Fund’s return.Because the fund normally will hold a focused portfolio of stocks of fewer companies than many other diversified funds, the increase or decrease of the value of a single stock may have a greater impact on the fund’s net asset value and total return.\

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.

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