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2022 Envestnet Asset Manager Awards

Small/Mid Cap Equity Manager of 2022: Tributary Capital Management

by Jeff Berman

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Tributary Capital Management is a winner of the Small Cap Equity 2021 Manager of the Year award thanks to the strong performance of its Tributary Small Cap, which Envestnet said was “driven by a combination of strong stock selection and factor tailwinds.”

The outperformance of Tributary’s Small Cap was especially impressive when one factors in the patience needed to stick with an investment process that had been challenged significantly in the past, especially in 2020, according to Envestnet.

Tributary has been managing the Small Cap portfolio since 1996 and did not change its strategy in 2021 despite unprecedented performance struggles, Envestnet noted.

Tributary’s Small Cap separate account composite returned 34% in 2021, outpacing the Russell 2000 Index by 19.2%. The team’s “process is bottom-up fundamentals and valuation-driven,” according to Mark Wynegar, president and portfolio manager, who said “it’s really a stock by stock decision-making process” that the team uses.

Wynegar (shown left in the above photo) manages the portfolio with Michael Johnson (right).

For example, Wynegar said one stock they owned in the portfolio, home health care company LHC Group, was “performing very well in 2020.” Then, in 2021, its stock “hit a weak patch where some things related to staffing, also some COVID trends, were impacting the company’s results and the stock weakened considerably,” he recalled.

But “on those pullbacks, we were adding to the stock at much lower prices than we had sold it and then, in early ’22, as it happened, UnitedHealthcare made an offer to buy the company and so we exited the position with a nice premium on a takeout,” Wynegar added.

Tributary’s goal is to “take businesses we own, businesses we can competently value, and let that drive and guide our decision-making,” he said. “And that’s an example that worked out well for us over the last couple of years.”

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What was difficult about last year was “there were some surges of speculative activity,” Wynegar said. One example came in January 2021, with the meme stocks rally that included “a lot of short squeezes related to GameStop and AMC,” among other stocks, he recalled, saying those “fits and starts of highly speculative activity were challenging.”

However, “they ultimately proved temporary as the year [went] along and, at the end of the year, the company results from our portfolio were good.”

Looking ahead to the rest of the year and the next 12 to 18 months, Wynegar said: “We certainly pay close attention to all of the issues that are weighing on the market and the litany of things. You can rattle them off between inflation and interest rates, labor shortages, supply chain issues, rate issues, Ukraine, COVID surges. You go down the list. There’s a lot of things to keep our eyes on.”

However, Wynegar explained: “At the end of the day, we’re looking at individual businesses, analyzing their results and placing a value on those companies. And I would say that the thing that we’re probably starting to look at right now is there’s been a lot of volatility in the market, and it may be starting to create some opportunities for investors that are really focused on valuation and really have an in-depth understanding of the businesses they’re investing in.”

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Mark Wynegar (left)

Title: Portfolio Manager; Years with present firm: 12 (another 11 before that, when the firm was a division of First Investment Group); Years in financial services: 28.

Michael Johnson (right)

Title: Portfolio Manager; Years with present firm: 12 (another five before that, when the firm was a division of First Investment Group); Years in financial services: 30.

Investment/asset class focus: U.S. Small Cap Equity; Asset management firm: Tributary Capital Management; Year firm founded: 2010; Number of employees: 13; AUM as of Dec. 31: $2.41 billion; assets under advisement: $2.9 billion overall; $1.9 billion for Small Cap alone.

Jeff Berman

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