Large Cap Investing During Volatile Markets


Our investment philosophy is investing in Positive Dynamic Change. We are seeing a tremendous amount of change occurring in the market. We want to be positioned in companies that are benefiting from positive change and those that are innovating; companies that are benefiting from secular growth trends and have defensible competitive moats. And if you look at our top holdings, most of them are benefiting from these big picture secular growth themes that I mentioned and will emerge out of this downturn, we believe, in a much stronger competitive position.

Patrick Kelly : I feel like I've seen virtually every kind of market since starting in this business over 20 years ago. There are similarities and differences between now and previous downturns. The extreme volatility in the market is creating opportunities on the buy and the sell side. We continue to evaluate the risk rewards in all of our companies with a heightened level of intensity. There's obviously a lot of things to think about in environments such as this but again, we're analyzing the risks and opportunities in each of our holdings and actively managing the portfolios amidst this volatility to take advantage of opportunities. Kevin Collins : That sounds like a very solid approach. Ankur, although the portfolios are down year to date, they've outperformed both of their benchmarks and the broad market. Why is this? Ankur Crawford : This environment has actually emboldened us and our viewpoint on how disruptors and innovators are capable of not only surviving but thriving in good and bad GDP situations. We have long believed that innovative growth companies can take market share and benefit in good and bad times and that's being proven out right now. For years, we've been talking about cloud and innovation and all of these product cycles that are coming together all at once. And a question that we would get asked often is, ‘These companies have gone up so much, isn't this like the tech bubble?' And we've always argued that it wasn't and the reason being is these companies have business models that are quite robust. Some of them had 85% recurring revenue. Their cashflow generation supports their valuations; they have minimal amounts of debt. And as we go through this crisis, they're actually being looked upon as technology companies that will help the world through this time of crisis. And what our large team of analysts is doing right now is trying to figure out what is going on, on the ground and determining what companies are doing in order to get themselves through this crisis. And what we're finding is that these disruptors are in fact gaining share in this environment and you know, in terms of the adoption of the cloud, which we've talked about for years, that's been accelerated as the benefits are becoming even more obvious to companies.

So, I'll turn it over to Ankur to see if she wants to add any comments there and how the current environment is accelerating some of the trends that I discussed.

Ankur Crawford : We think that this hiccup has actually changed the way companies work and it has highlighted that when the tide goes out, you actually can see who has proceeded along things like digital transformation and who hasn't. And those who have are able to cross this chasm that we're seeing right now and those that haven't are going to see worse than expected results. You have in the market a situation right now of the haves and the have nots. The companies like Nike that were able to cross the chasm and have a true digital initiative to approach the consumer, where consumers can go online and order shoes while the stores are closed, where they saw 40% growth in that side of their business versus, as Patrick mentioned, Macy's, that their stores are closing and they'll have significant impact to free cash flow. We think that this is highlighting not only companies that have been the adopters of technology and how it will benefit their business models on a go forward basis, but it's also highlighting the fact that there are companies that are enabling those technologies. And when we talk about innovation and disruption, that's really where we're focused. Kevin Collins : Patrick, you're an experienced portfolio manager; you've seen a lot of different market environments. What do you think of the present market volatility?

Made with FlippingBook - Online catalogs