Amy Zhang Call Transcript


Amy Zhang (continued): For example, many of you know about Wingstop and its digital strategy. did very well during the last Super Bowl and they could do as well again during the next Super Bowl. We also have companies like Shake Shack, which is more pronounced as a recovery trade. This is a relatively new position that we added this year when I believed the stock was very depressed and significantly undervalued because they’re exposed to tourism. They are about New York and New York making a comeback. But New York is strong. It will come back. So, I have a barbell approach. The key to the portfolio is diversification and being exposed to different end markets and customers with companies that would do well in all kinds of markets. Matt Goldberg : So, it really is a barbell approach that you are taking as we work our way toward a COVID vaccine. On another topic, the November election is quickly approaching. Because we’re coming up on the election, is your portfolio more immune to the election outcome? Is there anything you’re doing differently as we head into election season? Amy Zhang: We are not a macro strategy, but we are certainly cognizant of macro items. We spend most of our time focusing on identifying exceptional growth companies that really would potentially do well in any kind of political environment. Many of you probably have read our strategist Brad Neuman’s work. He talks about if we knew the outcome of the presidential election four years ago and invested accordingly, somebody would actually lose money based on that. For example, investing in the kind of companies that will benefit from an administration policy like deregulation – let’s say financial and also energy, but you see banks or energy have not done well. So instead, his study shows that we believe that the most innovative companies have done fairly well. Not to say that we will be immune, but we believe innovation will trump politics. What we can do is spend a lot of time understanding our positions’ risk/return profiles and use any market volatility to our advantage, so that we come out stronger. Volatility will be affecting

everyone, but we have historically come out stronger in a very volatile environment, including Q4, 2016. That really prepared us exceedingly well for 2017 and 2018, even though Small Cap Focus underperformed in Q4 of 2016. I think anybody would trade a quarter for a long- term success. Because we are thematic, we are very cognizant of not missing anything. Matt Goldberg: Thanks, Amy. Let me share a question from one of our listeners. Performance has been very strong this year for Small Cap Focus and Mid Cap Focus through the end of August and your MPT statistics are also compelling. Can you elaborate on the parts of your process that you believe contribute to the strong metrics and the performance? Amy Zhang: High-financial quality is really paramount to our strategy so we spend a lot of time looking at strong balance sheets and looking for companies with strong moats that can make the companies stronger. That’s why, if there’s one silver lining of COVID is that it crash-tested our portfolios. If you don’t have the high- financial cushion, a strong-financial cushion, then as a weak company you would just become a victim in high- stress periods, like COVID, and or other periods of financial distress or in a recession. So that’s first and foremost, but it’s also, as I mentioned before, the importance of the replication of the end market of some of the top companies. But it’s very important to have diversification and not to have the same exposure. So, looking at subsectors is very important. Sector weighting could be a little misleading because, for example, we talk about innovation. It’s very important that we dig very deep into

each subsector and you can see they all have idiosyncratic drivers and that’s very important.

So, at any given time, my goal is that some stocks will work. So, you will see, when you look at our top contributors every year, usually it’s different and when I’m thinking about building a portfolio, it’s very deliberate on my part. The timing is very uncertain. That’s why it’s very important to take a long-term view. This needs to be a three- to five-year investment program.

Conference Call 3/9

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