Amy Zhang Call Transcript


Speaker Question: I want to thank you for everything you’re doing. You’re amazing but I was curious, do you own Teladoc?

holdings like Shopify. You could see its double digits, multiple. So that’s the goal of Small Cap Focus.

In mid, this year, I changed the portfolio a lot. Mid is more fluid. When you get bigger market caps, there is more technical consideration. The key is about risk/reward. So, risk/reward plays a much bigger role, like the valuations. I care about valuation greatly, but to use a mechanical number like P/E for small cap is totally useless. There’s so much intellectual property, intangible assets, especially in small with so much growth that isn’t priced. So, to that extent, if something is more fully valued, I will probably sell it for better ideas. And the quest for the best ideas is more active in my experience in mid because there are just more higher quality companies. In small, because we’re so selective and we’re very confident in our selection criteria we’re willing to see it through, like a bump in the road. Because small companies, most of them, start with one product and one service and they’ve got to spend a lot on an idea. A lot of them don’t even have a direct sales force. All that growing pain is worth it if you see a bright future with a stock going up 20, 30 or even 50%. Speaker Question: Given the increase in AUM specifically in Small Cap Focus, does that present challenges in finding companies under $500 million in revenue where they can be substantial positions or do the positions start much smaller and give you an opportunity to build it up over time? Amy Zhang: In the past, people asked me about capacity and it’s really simple. Based on the number of holdings and average market capitalizations, you may end up holding 10% of a company, which isn’t outrageous because our limits on how much we can own of a company is 20%. We’re soft closed in the sense that we’re very selective in terms of inflows. We take very little inflow and everything is considered at a monthly AUM meeting with our COO and our chief distribution officer.

Amy Zhang: I think we’ve invested in Teladoc since the inception of Mid Cap Focus. I’ve known Teladoc for a long time and we used to own it when it first went public in Small Cap Focus. There were some issues with the company, but I do think telemedicine is a very important secular trend for Teladoc, and we think its acquisition of Livongo is going to make them even stronger. The stock has been weak lately, but we believe the acquisition is a very, very strategic decision. I think it’s very attractive because there’s a lot of revenue synergy and a lot of cost synergy as well. Livongo itself is also a very exceptional company–they excel in disease management, especially diabetes. It’s extremely important to manage diabetes in a COVID pandemic and as you know, we invest in companies that are saving lives. So Teladoc really stands out. And we do think it’s not a reversible trend in terms of in the health care system because health care is so expensive, and everybody wants to reduce costs. Doctors as well. A lot of doctors don’t really want to see patients in person.

Speaker Question: How do you crystallize your sell process?

Amy Zhang: Fundamentally the sell is about deterioration. So, to that extent, it’s when fundamentals deteriorate; that’s most applicable to small. And with small and mid we spend a lot of time differentiating bumps in the road versus permanent impairment of fundamentals. Our job in small, in terms of valuation, is really more art than science as we cover all the conventional grounds. We do very, very detailed modeling. There are rigorous stress tests.

But a lot of it is about seeing the future. For small, we try to only invest in companies that might double. But a lot of times, it’s more than double. We see many long-term

Conference Call 5/9

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