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April 15, 2019, 8:43 a.m. EDT

Want an insider’s way to play IPOs? This fund has had outsize success with its strategy

Half of the positions held by the Federated Kaufmann Small Cap Fund were started when the companies went public

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By Philip van Doorn, MarketWatch

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He said Americold is the “best-in-class operator,” and it will be able to consolidate a “very fragmented” industry.

Another fascinating name Ettinger described is ShotSpotter /zigman2/quotes/203800377/composite SSTI +0.29% , which he said was “a very small IPO” that came to market at $11 a share in June 2017. The stock closed at $31.08 on April 10. The company supplies gunshot-detection systems to cities.

“Eighty percent of gunshots result in no 911 call,” Ettinger said, underlining the importance of ShotSpotter’s service. “They have sensors to identify whenever a shot is fired in a particular area so police can respond to all the gunshots, instead of one out of five. This builds a lot more trust with the community.”

The system works with GPS to help police officers pinpoint precisely where a shot was fired, where they often find shell casings or other evidence. The detection system can help police find out how many shooters are involved and what types of guns are used.

“I went to the International Association of Chiefs of Police conference and spoke to at least a dozen police chiefs using the product. They were all singing its praises and how much it has helped them and how this product should really be the standard of any city that has gun violence,” Ettinger said.

ShotSpotter is providing service to about 100 cities. Ettinger called the company “far and away the leader” in its space and said it has “a lot of runway for growth.”

The last example Ettinger named was Planet Fitness /zigman2/quotes/203234487/composite PLNT -3.17% , which went public at an initial price of $16 in August 2015. The stock closed at $70.76 on April 10.

Planet Fitness ended 2018 with 1,742 stores, with all but 76 franchised. The company opened 230 stores last year, 226 of which were franchised, and it expects to maintain a similar growth pace. 

What sets the company apart from other gym operators, according to Ettinger, is “their competition is not other gyms, it is the couch.” He said similar words were used by senior managers of Planet Fitness when he met with them.

“About half of their new customers have never belonged to a gym before,” he said.

He likes the franchise model because it requires “little capital expenditure” for Planet Fitness to expand and increase its revenue. “They have the top brand in the industry, and they spend a good deal on marketing to maintain that brand leadership and awareness,” he said.

Ettinger said franchisees are generally happy and that many would like to open more Planet Fitness gyms near the ones they are operating. He believes the company can expand its U.S. presence to over 4,000 gyms.

Fund holdings

The Federated Kaufmann Small Cap Fund held 179 stocks as of Feb. 28. This is not a concentrated strategy, so a list of the top holdings may not be especially meaningful — they are top holdings in part because of stellar recent performance. Still, here are the top 10 holdings of the fund (actually 11, because American depositary receipts of Argenx SE were the top holding, while the company’s shares are listed on the Euronext Brussels exchange):

Total return
  Ticker Share of fund 2019 through April 10 2018 3 years
Argenx SE ADR /zigman2/quotes/209927031/composite ARGX   2.1% 33% 52% N/A
Spark Therapeutics Inc. /zigman2/quotes/200464619/lastsale ONCE 1.7% 188% -24% 235%
Argenx SE /zigman2/quotes/209977721/delayed BE:ARGX 1.6% 32% 62% 977%
Veeva Systems Inc Class A /zigman2/quotes/202850210/composite VEEV 1.3% 52% 62% 433%
Rapid7 Inc. /zigman2/quotes/203905856/composite RPD 1.2% 70% 67% 317%
Ultragenyx Pharmaceutical Inc. /zigman2/quotes/204970392/composite RARE 1.2% 68% -6% 4%
Alteryx Inc. Class A /zigman2/quotes/202651591/composite AYX 1.1% 37% 135% N/A
Inspire Medical Systems Inc. /zigman2/quotes/209639226/composite INSP 1.1% 32% N/A N/A
Planet Fitness Inc. Class A /zigman2/quotes/203234487/composite PLNT 1.0% 32% 55% 439%
UniQure NV /zigman2/quotes/203652599/composite QURE 1.0% 102% 47% 326%
Sources: Federated Investors, FactSet

Veeva Systems /zigman2/quotes/202850210/composite VEEV -1.45%  is a particular favorite of Amy Zhang, manager of the Alger Small Cap Focus Fund /zigman2/quotes/207263247/realtime AOFAX -1.12% , who talked about the company in February.

Performance

The Federated Kaufmann Small Cap Index Fund has six share classes with different expenses. The class A shares technically have a sales charge of 5.50%. However, sales charges may be waived depending on the relationship between your broker or financial adviser with Federated Investors. The total return figures shown below are net of expenses but exclude any sales charges.

The benchmark for the fund is the Russell 2000 Growth Index /zigman2/quotes/210598147/delayed RUT +0.14% . Returns for the S&P 600 Small-Cap Index, the S&P 400 Mid-Cap Index /zigman2/quotes/219506813/composite MID -0.67%  and the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.08%  are shown for comparison, along with those of the fund’s Morningstar category.

  Total return - 2019 through April 10 Average annual return - 3 years Average annual return - 5 years Average annual return - 10 years Average annual return - 15 years
Federated Kaufmann Small Cap Stock Fund - Institutional /zigman2/quotes/204166501/realtime FKASX 24.8% 29.3% 17.1% 19.1% 11.2%
Morningstar Small Growth category 18.1% 16.6% 9.0% 15.4% 8.6%
Russell 2000 Growth Index /zigman2/quotes/210598133/delayed XX:RUO 20.0% 16.1% 10.0% 15.7% 8.7%
S&P 600 Small-Cap Index /zigman2/quotes/210599868/delayed SML 15.0% 14.5% 9.8% 16.1% 9.7%
S&P 400 Mid-Cap Index /zigman2/quotes/219506813/composite MID 17.5% 12.7% 9.5% 15.5% 9.6%
S&P 500 Index /zigman2/quotes/210599714/realtime SPX 15.9% 14.5% 11.8% 15.3% 8.6%
Sources: Morningstar Direct, FactSet

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/zigman2/quotes/203800377/composite
US : U.S.: Nasdaq
$ 28.04
+0.08 +0.29%
Volume: 40,376
Jan. 14, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$327.39 million
Rev. per Employee
$361,994
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/zigman2/quotes/203234487/composite
US : U.S.: NYSE
$ 86.78
-2.84 -3.17%
Volume: 1.32M
Jan. 14, 2022 4:00p
P/E Ratio
158.62
Dividend Yield
N/A
Market Cap
$7.51 billion
Rev. per Employee
$387,278
loading...
/zigman2/quotes/209927031/composite
US : U.S.: Nasdaq
$ 291.50
+3.17 +1.10%
Volume: 150,904
Jan. 14, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$14.53 billion
Rev. per Employee
$1.45M
loading...
/zigman2/quotes/200464619/lastsale
US : U.S.: Nasdaq
$ 113.57
0.00 0.00%
Volume: 23,897
Dec. 17, 2019 12:00a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
N/A
Rev. per Employee
$175,883
loading...
/zigman2/quotes/209977721/delayed
BE : Belgium: Euronext Brussels
249.50
-4.80 -1.89%
Volume: 48,751
Jan. 14, 2022 5:35p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
€12.71 billion
Rev. per Employee
€1.20M
loading...
/zigman2/quotes/202850210/composite
US : U.S.: NYSE
$ 223.85
-3.30 -1.45%
Volume: 1.38M
Jan. 14, 2022 4:00p
P/E Ratio
83.97
Dividend Yield
N/A
Market Cap
$34.42 billion
Rev. per Employee
$391,043
loading...
/zigman2/quotes/203905856/composite
US : U.S.: Nasdaq
$ 96.45
-1.11 -1.14%
Volume: 446,405
Jan. 14, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$5.51 billion
Rev. per Employee
$269,044
loading...
/zigman2/quotes/204970392/composite
US : U.S.: Nasdaq
$ 72.05
+2.16 +3.09%
Volume: 416,468
Jan. 14, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$4.91 billion
Rev. per Employee
$402,642
loading...
/zigman2/quotes/202651591/composite
US : U.S.: NYSE
$ 58.34
+0.35 +0.60%
Volume: 521,204
Jan. 14, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$3.94 billion
Rev. per Employee
$360,591
loading...
/zigman2/quotes/209639226/composite
US : U.S.: NYSE
$ 237.54
+1.99 +0.84%
Volume: 424,151
Jan. 14, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$6.50 billion
Rev. per Employee
$634,085
loading...
/zigman2/quotes/203234487/composite
US : U.S.: NYSE
$ 86.78
-2.84 -3.17%
Volume: 1.32M
Jan. 14, 2022 4:00p
P/E Ratio
158.62
Dividend Yield
N/A
Market Cap
$7.51 billion
Rev. per Employee
$387,278
loading...
/zigman2/quotes/203652599/composite
US : U.S.: Nasdaq
$ 20.21
+0.82 +4.23%
Volume: 546,285
Jan. 14, 2022 4:00p
P/E Ratio
2.98
Dividend Yield
N/A
Market Cap
$933.99 million
Rev. per Employee
$1.51M
loading...
/zigman2/quotes/202850210/composite
US : U.S.: NYSE
$ 223.85
-3.30 -1.45%
Volume: 1.38M
Jan. 14, 2022 4:00p
P/E Ratio
83.97
Dividend Yield
N/A
Market Cap
$34.42 billion
Rev. per Employee
$391,043
loading...
/zigman2/quotes/207263247/realtime
US : U.S.: Nasdaq
$ 22.02
-0.25 -1.12%
Volume: 0.00
Jan. 14, 2022
loading...
/zigman2/quotes/210598147/delayed
US : US Composite
2,162.46
+3.02 +0.14%
Volume: 1.45M
Jan. 14, 2022 6:22p
loading...
/zigman2/quotes/219506813/composite
US : U.S.: NYSE Arca
$ 50.52
-0.34 -0.67%
Volume: 817.00
Jan. 14, 2022 4:10p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
4,662.85
+3.82 +0.08%
Volume: 2.52B
Jan. 14, 2022 5:16p
loading...
/zigman2/quotes/204166501/realtime
US : U.S.: Nasdaq
$ 52.53
-0.16 -0.30%
Volume: 0.00
Jan. 14, 2022
loading...
/zigman2/quotes/210598133/delayed
XX : US Composite
1,375.99
-3.40 -0.25%
Volume: 949,939
Jan. 14, 2022 6:22p
loading...
/zigman2/quotes/210599868/delayed
US : S&P US
1,388.27
+6.25 +0.45%
Volume: 283.23M
Jan. 14, 2022 5:16p
loading...
/zigman2/quotes/219506813/composite
US : U.S.: NYSE Arca
$ 50.52
-0.34 -0.67%
Volume: 817.00
Jan. 14, 2022 4:10p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
4,662.85
+3.82 +0.08%
Volume: 2.52B
Jan. 14, 2022 5:16p
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Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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