Portfolio Insights: Large Cap Strategies


Patrick Kelly (continued): We do think that there's probably a big catalyst ahead in the very near term with Tesla getting added to the S&P 500 index and, just given the market cap of the stock, that's going to create a lot of buying demand for the stock. We've been waiting for that catalyst to happen and then I think we will evaluate whether we want to continue to own the stock or not post theā€“post that announcement.

impacted by a potential Biden and Democratic victory.

Speaker Question: You've mentioned the digitization of the economy and listed several different sectors where this is occurring. Do you ever get put into a box saying that hey, you're running a technology fund, because this is such a theme throughout all industries? Patrick Kelly: Yes, that's a good question. I think the lines have blurred as to what a tech company is, a consumer company is, what a media company is. We've seen the classifications and the index, they keep changing things around, and some of it makes sense, some of it doesn't. We've been talking over the past several years that almost all companies are having to become technology companies to some extent, and companies are having to invest significantly more in technology. Companies are having to digitize their businesses and so, if you're an auto company, you are facing two big paradigm shifts in electric vehicles and autonomous vehicles. You're having to become much more of a technology company than previously. If you're a retailer, if you look at the income statements of traditional retailers, there was no R&D line, it was just selling, general, and administrative expenses. But now many of these retailers are having to invest in technology and digitize their businesses and the whole idea of selling products to consumers and businesses is changing. We've talked about how the banks have to invest and become technology companies to a certain extent, because there's a shift in the old traditional model of the local bank branch. You used to select a bank based on what bank was in closest proximity to you, and now it's becoming much more about the digital services and the digital asset that the bank provides. And we've highlighted comments that Jamie Dimon has made about the technology investments at JP Morgan and how it's become table stakes and they have a huge technology and IT budget. I think the lines are blurring a bit as to what is and what's not a technology company, and I do think that companies at cross sectors are having to invest in technology, become more like tech companies.

Speaker Question: Did you say you were comparing all equities to beachfront properties or a specific group?

Patrick Kelly: No, I was referring to those that we believe are high-quality growth companies that are good long duration assets. Companies where you have confidence in the outlook in the businesses, where they have good defensible positions, they're benefiting from secular growth trends, and we feel that they're well positioned over the next 5 to 10 years. I think those type of companies are like beachfront properties and I think that they will trade at premium multiples. And part of that is due to all of the disruption that we're seeing across sectors. Also, given where rates are, I think that also enhances the value of these durable assets. The discount rates that you're using on some of these companies are lower now and I think that is another reason that they will get premium multiples. Jessie Quick: Great. Thank you, Patrick. With the U.S. presidential election coming up in a few months, several people are asking how you think that may impact your investment process and how do you see a Biden victory potentially impacting the markets, if that were to happen. So any comments there would be appreciated. Patrick Kelly: There are always risks in the markets, and I think this is one of them. The bigger risk, in my opinion, is if there's a Democratic sweep, if Biden wins and the Democrats take the Senate. Currently, there is slightly more than a 50% chance of that happening. If Biden were to win and the Republicans retain the Senate, that could be viewed as potentially positive for the markets. But under any scenario, I still think that the long-term backdrop for the equity markets remains positive for all of the reasons that I mentioned in my opening remarks. We're going through our portfolio and thinking about how each of the companies will be

Conference Call 6/9

Made with FlippingBook Publishing Software