# EDGAR Filing Document

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**ACCESSION NUMBER**: 0000356787-23-000032

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**FILED AS OF DATE**: 20230331

**DATE AS OF CHANGE**: 20230331

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** SIT MID CAP GROWTH FUND INC
- **CENTRAL INDEX KEY:** 0000356787
- **IRS NUMBER:** 411414580
- **STATE OF INCORPORATION:** MN
- **FISCAL YEAR END:** 0630

**FILING VALUES:**
- **FORM TYPE:** 40-24B2
- **SEC ACT:** 1940 Act
- **SEC FILE NUMBER:** 811-03342
- **FILM NUMBER:** 23788896

**BUSINESS ADDRESS:**
- **STREET 1:** 3300 IDS CTR, 80 S 8TH ST
- **STREET 2:** 3300 IDS CTR, 80 S 8TH ST
- **CITY:** MINNEAPOLIS
- **STATE:** MN
- **ZIP:** 55402-4130
- **BUSINESS PHONE:** 612-332-32

**MAIL ADDRESS:**
- **STREET 1:** 3300 IDS CTR, 80 S 8TH ST
- **STREET 2:** 3300 IDS CTR, 80 S 8TH ST
- **CITY:** MINNEAPOLIS
- **STATE:** MN
- **ZIP:** 55402-4130

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SIT GROWTH FUND INC
- **DATE OF NAME CHANGE:** 19940620

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SIT NEW BEGINNING GROWTH & INCOME FUND INC
- **DATE OF NAME CHANGE:** 19930923

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** NEW BEGINNING INCOME & GROWTH FUND INC
- **DATE OF NAME CHANGE:** 19870907
**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** SIT MUTUAL FUNDS INC
- **CENTRAL INDEX KEY:** 0000877880
- **IRS NUMBER:** 000000000
- **STATE OF INCORPORATION:** MN
- **FISCAL YEAR END:** 0630

**FILING VALUES:**
- **FORM TYPE:** 40-24B2
- **SEC ACT:** 1940 Act
- **SEC FILE NUMBER:** 811-06373
- **FILM NUMBER:** 23788899

**BUSINESS ADDRESS:**
- **STREET 1:** 3300 IDS CTR, 80 SOUTH 8TH ST
- **CITY:** MINNEAPOLIS
- **STATE:** MN
- **ZIP:** 55402-4130
- **BUSINESS PHONE:** 612-332-3223

**MAIL ADDRESS:**
- **STREET 1:** 3300 IDS CTR, 80 SOUTH 8TH ST
- **CITY:** MINNEAPOLIS
- **STATE:** MN
- **ZIP:** 55402-4130

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SIT NEW BEGINNING MUTUAL FUNDS INC
- **DATE OF NAME CHANGE:** 19920929
**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** SIT U S GOVERNMENT SECURITIES FUND INC
- **CENTRAL INDEX KEY:** 0000809981
- **IRS NUMBER:** 411570831
- **STATE OF INCORPORATION:** MN
- **FISCAL YEAR END:** 0331

**FILING VALUES:**
- **FORM TYPE:** 40-24B2
- **SEC ACT:** 1940 Act
- **SEC FILE NUMBER:** 811-04995
- **FILM NUMBER:** 23788898

**BUSINESS ADDRESS:**
- **STREET 1:** 3300 IDS CTR 80 S 8TH ST
- **CITY:** MINNEAPOLIS
- **STATE:** MN
- **ZIP:** 55402
- **BUSINESS PHONE:** 6123323223

**MAIL ADDRESS:**
- **STREET 1:** 3300 IDS CENTER, 80 SOUTH EIGHTH  ST
- **CITY:** MINNEAPOLIS
- **STATE:** MN
- **ZIP:** 55402-4130

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SIT NEW BEGINNING U S GOVERNMENT SECURITIES FUND INC
- **DATE OF NAME CHANGE:** 19920703

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** NEW BEGINNING U S GOVERNMENT SECURITIES FUND INC
- **DATE OF NAME CHANGE:** 19870601
**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** SIT LARGE CAP GROWTH FUND INC
- **CENTRAL INDEX KEY:** 0000356786
- **IRS NUMBER:** 411414580
- **STATE OF INCORPORATION:** MN
- **FISCAL YEAR END:** 0630

**FILING VALUES:**
- **FORM TYPE:** 40-24B2
- **SEC ACT:** 1940 Act
- **SEC FILE NUMBER:** 811-03343
- **FILM NUMBER:** 23788900

**BUSINESS ADDRESS:**
- **STREET 1:** 3300 IDS CENTER 80 SOUTH 8TH ST
- **CITY:** MINNEAPOLIS
- **STATE:** MN
- **ZIP:** 55402
- **BUSINESS PHONE:** 612-332-3223

**MAIL ADDRESS:**
- **STREET 1:** 3300 IDS CENTER 80 SOUTH 8TH ST
- **CITY:** MINNEAPOLIS
- **STATE:** MN
- **ZIP:** 55402

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SIT GROWTH & INCOME FUND INC
- **DATE OF NAME CHANGE:** 19940620

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** NEW BEGINNING GROWTH FUND INC/NEW
- **DATE OF NAME CHANGE:** 19870907
**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** SIT MUTUAL FUNDS II INC
- **CENTRAL INDEX KEY:** 0000746601
- **IRS NUMBER:** 000000000
- **STATE OF INCORPORATION:** MN
- **FISCAL YEAR END:** 0331

**FILING VALUES:**
- **FORM TYPE:** 40-24B2
- **SEC ACT:** 1940 Act
- **SEC FILE NUMBER:** 811-04033
- **FILM NUMBER:** 23788897

**BUSINESS ADDRESS:**
- **STREET 1:** 3300 IDS CTR, 80 S. 8TH STREET
- **CITY:** MINNEAPOLIS
- **STATE:** MN
- **ZIP:** 55402
- **BUSINESS PHONE:** 612-332-3223

**MAIL ADDRESS:**
- **STREET 1:** 3300 IDS CTR, 80 S. 8TH STREET
- **CITY:** MINNEAPOLIS
- **STATE:** MN
- **ZIP:** 55402

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SIT NEW BEGINNING TAX FREE INCOME FUND INC
- **DATE OF NAME CHANGE:** 19920703

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** SIT NEW BEGINNING YIELD FUND INC
- **DATE OF NAME CHANGE:** 19880929

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** NEW BEGINNING YIELD FUND INC
- **DATE OF NAME CHANGE:** 19870907

### Attached PDF Documents

**Attachment 1:** `DividendInvesting.pdf`

# The Case for Dividend Growth

Sit Investment Associates

1

# THE CASE FOR DIVIDEND GROWTH

Until 2022, dividend-based strategies lagged for several years primarily due to a combination of unprecedented outperformance from high “long duration” non-dividend paying growth stocks and the lagging performance of the defensive cohort within the dividend paying universe.

Catalysts for sustained outperformance:

- Short term: continued market volatility, recession risks
- Long-term: subdued market returns given the likelihood of prolonged sluggish economic growth, geopolitical risks, and somewhat higher inflation (i.e., absence of Fed “put”)
- Broad increase in capital returns (following COVID-driven pause) over past eighteen months
- Fund flows shift to dividend payers as substitute for bonds
- Rising interest rates, depending on coinciding macro conditions

SIA Dividend Strategy

- High quality emphasis- strong balance sheets, FCF generation, ROIC-focused management teams
- Balance income and capital appreciation through disciplined framework
- Maintain 50-100 bp yield spread over S&P Index
- Manage risks through diversification, quality, valuation discipline, and tactical positions
- Growth-focused. All holdings expected to grow dividends over time

Current Fund Positioning

- Quality and diversification critical given macro cross-currents and cyclical risks
- Barbell most attractive pro-cyclicals (tech hardware, financials) with defensive/ non-cyclicals (P&C insurance, defense, utilities, REITs)
- Increased U.S. exposure given heightened Europe/ China “tail” risks, stronger $USD
- Significant weightings to most attractive long-term growth sectors: technology, health care, and energy-related

Sit Investment Associates

2

## UNPRECEDENTED STIMULUS AND MARKET IMPACT

### Announced Global Stimulus (Feb. 2020 - Sep. 2022)

|  | Potential Ctrl. Bank Liquidity Injection |  | Potential Govt. Fiscal Stimulus |  |
| --- | --- | --- | --- | --- |
|  | $ Tln | % GDP | $ Tln | % GDP |
| U.S. | 6.21 | 27.0% | 7.32 | 31.8% |
| Euro Area | 2.38 | 16.4% | 4.94 | 34.0% |
| Japan | 1.03 | 20.8% | 3.72 | 75.3% |
| U.K. | 0.57 | 17.9% | 0.89 | 29.7% |
| China | 2.11 | 12.1% | 1.10 | 6.3% |
| Others* | 1.71 |  | 3.45 |  |
| Total | 14.01 | 14.6% | 19.25 | 22.2% |

Source: Piper Sandler

### S&P 500 PE Ratio vs U.S. Excess Liquidity

![img-0.jpeg](img-0.jpeg)

Source: FactSet

### Fiscal Responses in Large Crises

Estimated Coefficients

![img-1.jpeg](img-1.jpeg)

Source: International Monetary Fund

### Non-Dividend/Dividend Payer Relative Performance vs Excess Liquidity*

![img-2.jpeg](img-2.jpeg)

Source: Federal Reserve, Investment Company Institute, FactSet

Sit Investment Associates

Source: Piper Sandler 9/31/22, IMF 10/17/22, Federal Reserve, Investment Company Institute 10/31/22

3

# FISCAL AND MONETARY POLICY TIGHTENING

Fiscal Impulse*

![img-3.jpeg](img-3.jpeg)

Source: International Monetary Fund

Global Central Bank Policy Rate Cycles

![img-4.jpeg](img-4.jpeg)

Source: World Bank, Bank for International Settlements

Policy Rate Changes, Developed Markets, YTD 2022

![img-5.jpeg](img-5.jpeg)

Source: FactSet

Pace of U.S. Monetary Tightening Cycles

![img-6.jpeg](img-6.jpeg)

Source: Federal Reserve, CME Group

Source: IMF 10/17/22, World Bank, Bank for International Settlements 10/31/22, FactSet, 11/4/22 Federal Reserve, CME Group 11/4/22

Sit Investment Associates

4

# LASTING REVERSAL IN DISINFLATIONARY BACKDROP WOULD BE PAINFUL

The End of the “Lowflation” Era

![img-7.jpeg](img-7.jpeg)

Source: Bloomberg, Evercore ISI Research

![img-8.jpeg](img-8.jpeg)

US private sector financial assets % of GDP

![img-9.jpeg](img-9.jpeg)

Large rise in leverage over the past decade

Change in global debt by sector, $tn

![img-10.jpeg](img-10.jpeg)

Source: Bank of America/Merrill Lynch 7/28/22 & 7/19/21, Wall Street Journal 6/25/22
Factset Research Systems 11/3/22

Sit Investment
Associates

5

# DEBT BURDENS AND DEMOGRAPHICS TO PRESSURE GLOBAL GROWTH FOR YEARS TO COME

Change in debt-GDP, between Q4-2019 and Q4-2020 (pp)

![img-11.jpeg](img-11.jpeg)

Source: IIF, BIS, IMF, National Sources, Deutsche Bank

Annual change in working age population, 1955-2100

![img-12.jpeg](img-12.jpeg)

Source: Deutsche Bank Research 5/7/21, Jeffries 1/17/22

Sit Investment Associates

6

# GEOPOLITICAL RISKS LIKELY TO REMAIN HIGH

Global Economic Policy Uncertainty Index

![img-13.jpeg](img-13.jpeg)

Source: Baker, Bloom & Davis

U.S. Modernization Budget Forecast FY23-25

![img-14.jpeg](img-14.jpeg)

Europe NATO Members Nations - Defense Spending (Current $)

![img-15.jpeg](img-15.jpeg)

Source: Baker, Bloom & Davis 9/30/22, Barclays 7/14/22

Sit Investment Associates

7

## EARNINGS YIELD GREATER THAN BOND YIELDS GLOBALLY

![img-16.jpeg](img-16.jpeg)

![img-17.jpeg](img-17.jpeg)

![img-18.jpeg](img-18.jpeg)

![img-19.jpeg](img-19.jpeg)

![Sit Investment Associates logo]() Sit Investment Associates

Source: Factset Research Systems 11/2/22

8

## BONDS ARE NOT INSULATING INVESTORS AS THEY ONCE DID

![img-20.jpeg](img-20.jpeg)

Sit Investment Associates

Source: BCA Research 9/30/22

9

# DIVIDENDS AND SHARE BUYBACKS ACCELERATING

# S&P 500 Cash Dividends per Share

![img-21.jpeg](img-21.jpeg)

Source: S&P Global

# S&P 500 dividend payout ratio vs. Forward P/E

![img-22.jpeg](img-22.jpeg)

Source: FactSet & Compustat
* Methodology: Annualized dividend payment based on quarterly dividend paid/announced in local currency, including the local currency dividend for ADR parent securities where applicable.

# S&P 500 Share Buybacks and Dividends ($ Billions)

![img-23.jpeg](img-23.jpeg)

Source: FactSet, Goldman Sachs

# S&P 500 Forward P/E Ratio vs Dividend Payout Ratio

![img-24.jpeg](img-24.jpeg)

Source: FactSet

Sit Investment Associates

Source: FactSet, Goldman Sachs, & Compustat 10/31/22

10

# DESPITE HIGHER RATES, CAPITAL RETURN STRATEGIES REMAIN ATTRACTIVE

![img-0.jpeg](img-0.jpeg)

![img-1.jpeg](img-1.jpeg)

Sit Investment Associates

Source: 22V Research 7/2022 & 10/16/22

11

# MASSIVE UNDERPERFORMANCE IN DEFENSIVE SECTORS AND NON-DIVIDEND PAYERS

![img-2.jpeg](img-2.jpeg)

Defensives include: Telecommunication Services, Consumer Staples, Utilities, and Pharmaceuticals

Attribution
Dividend Payers vs. Non Dividend Payers
6/29/2012 to 10/31/2022

|  | S&P 500 |  |
| --- | --- | --- |
|  | Average Weight | Total Return |
| DIVIDEND | 82.02 | 240.14 |
| NO DIVIDEND | 17.98 | 345.40 |
| Total | 100.00 | 247.56 |

Sit Investment Associates

Source: Factset Research Systems 10/31/22

12

# DECELERATING PROFIT CYCLE AND INCREASING VOLATILITY FAVORS QUALITY ORIENTATION

Average performance by S&P 500 Quality Ranks when the profits cycle decelerated (last seven cycles, 1988-present)

![img-3.jpeg](img-3.jpeg)

Source: BofA US Equity and Quant Strategy, S&P

BofA Quality Indices 12m Performance Correlation to 12m Changes in CBOE VIX (1986-4/30/2022)

![img-4.jpeg](img-4.jpeg)

Source: BofA US Equity and Quant Strategy, Standard & Poor's

Sit Investment Associates

Source: Bank of America/Merrill Lynch 6/1/22

13

## TECHNOLOGY SECTOR ATTRACTIVE FOR DIVIDEND GROWTH INVESTORS

**Real PFI: Information Processing Equipment & Software**
Percent of Real GDP

![img-5.jpeg](img-5.jpeg)

Source: Bureau of Economic Analysis

**S&P 500: Information Tech vs Non-Information Tech**
as of 10/31/2022

![img-6.jpeg](img-6.jpeg)

Source: FactSet

**Attractive Tech Dividend Payers**

| COMPANY NAME | DIV. YIELD | 10-YR CAGR |  | NTM P/E (11/4/22) | NTM P/E (12/31/21) |
| --- | --- | --- | --- | --- | --- |
|  |  | DPS | EPS |  |  |
| Accenture Plc | 1.7% | 11% | 11% | 22.5x | 38.0x |
| Genpact Limited | 1.1% | n/a | 8% | 15.4x | 19.8x |
| Broadcom Inc. | 3.5% | 40% | 26% | 11.4x | 19.8x |
| Oracle Corporation | 1.7% | 18% | 1% | 14.6x | 17.2x |
| Microsoft Corporation | 1.2% | 12% | 18% | 21.9x | 34.0x |
| Analog Devices, Inc. | 2.1% | 10% | 5% | 15.1x | 22.8x |
| Skyworks Solutions, Inc. | 2.8% | n/a | 22% | 8.8x | 13.1x |
| TE Connectivity Ltd. | 1.9% | 11% | 11% | 16.5x | 22.1x |
| Tech Group (Median) | 1.8% | 11% | 11% | 15.2x | 21.0x |
| S&P 500 (Median) | 1.6% | 9% | 8% | 17.0x | 20.2x |

The mention of specific securities is not a recommendation to buy, sell, or hold any particular security and is not indicative of Sit Investment Associates, Inc.'s current or future trading activity.

Sit Investment Associates

Source: Bureau of Economic Analysis 10/31/22, Factset Research Systems 10/31/22 & 11/4/22

14

# UNDERINVESTMENT IN OIL AND GAS, WITH RENEWABLES SURGING

![img-7.jpeg](img-7.jpeg)

![img-8.jpeg](img-8.jpeg)

Global investment in energy transition

Billions USD, nominal

![img-9.jpeg](img-9.jpeg)

Sit Investment Associates

Source: BCA Research 9/30/22 JP Morgan 9/30/22

15

# SECULAR CASE INTACT FOR HEALTH CARE

U.S. National Health Expenditures

![img-10.jpeg](img-10.jpeg)

Source: Centers for Medicare & Medicaid Services

Population Age 65+

![img-11.jpeg](img-11.jpeg)

Source: World Bank, U.S. Census International DB (Projections)

Projected Medicare Spending

![img-12.jpeg](img-12.jpeg)

Source: U.S. Department of Health & Human Services

U.S. Prescription Drug Expenditures

![img-13.jpeg](img-13.jpeg)

Source: Centers for Medicare & Medicaid Services

Source: Centers for Medicare & Medicaid Services, World Bank, U.S. Census International DB, U.S. Department of Health & Human Services 11/2022

Sit Investment Associates

16

# SIT DIVIDEND GROWTH - SECTOR STRATEGY

### PRO-CYCLICAL GROUPS

- **Financials/Credit Sensitive:** *Overweight*. Valuations reflect recession risks more than any other sector. Credit trends stable, loan growth and NIM improving, with most banks increasing dividends post capital review. Higher rates support life insurers and the P&C sector, which is in midst of multi-year pricing cycle. Regardless of sub-industry, favor firms with strong capital positions and conservative investment portfolios.
- **Materials/Energy:** *Overweight*. Structural underinvestment in virtually all commodities amplified by Russia-Ukraine conflict; prefer energy to metals/materials given macro risks. Attractive as inflation/geopolitical hedge.
- **Technology - Hardware/Semiconductors:** *Overweight*. Earnings risk largely discounted as valuations have compressed. Favor diversified semiconductor (outside of PCs) names growing via ever-increasing “content” stories in *everything*. Emphasizing exposure to cloud/5G exposure, auto/electric vehicles, industrial, defense.
- **Industrials:** *Equal weight*. Peaking fundamentals, but backlogs support near-term growth. Supply chain pressures largely offset by pricing. Emphasizing infrastructure, “electrification”, commercial aerospace, and automation plays. Slowdown in Europe and China are key risks.
- **Transports:** *Equal weight*. Pricing beginning to erode in some modes (i.e., air freight, truck) just as goods spending is decelerating as consumer shift to service spending. Favor rail as re-opening/commodity export beneficiary.
- **Consumer Cyclicals:** *Underweight*. Consumer balance sheets healthy (in aggregate) as job growth accelerates, but risk from “mean reversion” as spending shifts from goods to services as economy normalizes. Labor, energy, and transport costs are major headwinds for many sub-groups.
- **Technology - Software/Services/Internet:** *Underweight*. Lack of dividends and elevated valuations are primary factors driving underweight. Prefer IT service firms and select software. Higher interest rates remain a challenge to valuations via “duration effect,” while growth is slowing in formerly “hot” areas (AI, cloud, etc.)

Sit Investment Associates

17

# SIT DIVIDEND GROWTH - SECTOR STRATEGY

### NON-CYCLICAL/DEFENSIVE GROUPS

- **Healthcare:** *Overweight.* Valuations attractive on achievable expectations; favor US based service companies (HMO's/hospitals) and med-tech over bio/pharma given drug pricing risks. Sector trading at 30% discount to consumer staples and overall markets despite much stronger growth prospects. Minimal "rotation risk" due to interest rates or if market sentiment improves (i.e., to "risk on").
- **Utilities:** *Overweight.* Valuations high but best hedge (by far) against macro "tail" risk given EPS visibility, immune to U.S. dollar swings, inflation/supply chain pressures. Growth (5-8%) supported by rate base and underappreciated renewables (wind, solar, T&D) growth, boosted by recently passed IRA.
- **P&C Insurance:** *Overweight.* Pricing improving following significant catastrophe and COVID-related losses. Higher interest rates boosting investment income. Favor commercial over personal lines.
- **Defense:** *Overweight.* Russia-Ukraine will likely mark an inflection point in defense budgets, with Europe the key driver.
- **REITS:** *Equal weight.* Valuations generally attractive (including 3-5% dividend yields), fundamentals broadly improving for most subsectors with limited new supply pressure. Rising rates and persistent inflation a key risk.
- **Consumer Staples:** *Equal Weight.* High valuations and slow growth, margin pressure from price/input costs, substitution risk from private label. Beverages and consolidation stories attractive.
- **Telecommunications:** *Underweight.* Defensive with modest growth, high dividend yields, and attractive valuations. Underweight telco providers given debt and competitive concerns; favor 5G exposure via tower companies.

Sit Investment Associates

18

# IMPORTANT DISCLOSURES

This analysis contains the collective opinions of our analysts and portfolio managers and is provided for informational purposes only. While the information is accurate at the time of writing, such information is subject to change at any time without notice, and therefore, so may the investment decisions of Sit Investment Associates.

Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here, including all charts and data whether created by Sit or a third party, is reliable but should not be assumed to be accurate or complete.

Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sit's views as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements.

The information provided in this presentation should not be considered a recommendation of any particular security or strategy, nor should it be considered a solicitation or offering to sell securities or an interest in any strategy or fund.

Sit Investment Associates

19