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MidCap Equity

Investing in high-quality mid-cap companies with owner-operator management teams and sustainable competitive advantages.

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MidCap Equity strategy differentiators

  • A wide latitude to depart from index weights results in higher active share and more concentrated top holdings than peers.

  • Aligned incentives: Owner-operators tend to be passionate and cost conscious. We believe they have longer-term outlooks and are better capital allocators.

  • An experienced team with a history of delivering excess risk-adjusted returns over market cycles.

What are owner-operator companies and why do they matter?

Learn more from Client Portfolio Manager, Hans Vander Plaats, to discover how investors can benefit from these companies and why we believe they are going to stand out.

1:09 minView video transcript

A simple concept with a powerful impact

We believe owner-operator traits—things like love for the business, a focus on long-term outcomes, and rational thinking about capital allocation—naturally align with what’s best for long-term shareholder value.

To help us understand a CEO’s personal incentives, we use a simple calculation we call the aligned ratio, which measures the owner’s stake in the business relative to their annual pay. The aim is straightforward. Do they think about the business as a part-owner or highly-paid employee? Many CEOs have single digit aligned ratios. Owner-operators often have much larger ratios, with ownership that is commonly over 100 or even, 1,000 times their compensation.

Aligned ratio

Bar chart showing compensation and CEO invested amount ratio of owner-operators vs cash-paid CEOs

Evidence that owner-operators outperform

We believe owner-operators are better CEOs. But does this matter for investors? Yes—owner-operator companies are four to five times more likely to be top quartile performers. In fact, owner operators performed 3.1 times better than other companies over the past 15 years.1

Indexed total shareholder return

Line graph of indexed total shareholder return in founder-led companies vs. other companies from 1990-2014

Source: Bain & Company. Based on an analysis of S&P 500 firms in 2014.

Learn more about our large cap owner-operator strategy, Blue Chip Equity.

Strategy facts

  • Manager

    Principal Aligned

  • Inception

    1 April 2000

  • Index

    Russell Midcap Index

  • Targeted number of holdings

    70-100

  • Expected turnover

    15-30%

  • Investment vehicles

    CIT, IMA, SMA, U.S. Mutual Fund

Portfolio management

Principal Aligned

Long-term, bottom-up fundamental investors who specialize in the management of U.S. large-cap and mid-cap portfolios. We specifically target owner-operator led companies with aligned incentives and are constantly focused on valuation and risk reduction.

Chief Investment Officer, Portfolio Manager
K. William Nolin, CFA
30 years of experience
Director of Research, Portfolio Manager
Thomas Rozycki, CFA
23 years of experience
Learn more

Need more information? Contact us.

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Past performance does not guarantee future results.

Equity markets are subject to many factors, including economic conditions, government regulations, market sentiment, local and international political events, and environmental and technological issues that may impact return and volatility. Mid-cap stocks may have additional risks including greater price volatility.

Investment guidelines are subject to change.

Not all investment options are available in all jurisdictions. Certain vehicles have not been registered with the United States Securities and Exchange Commission under the United States Securities Act of 1933 and may not be directly or indirectly offered or sold in the United States or to any United States person.

Principal Aligned is an investment team within Principal Global Investors.

Russell Midcap Index includes firms 201 through 1000, based on market capitalization, from the Russell 3000® Index.