Portfolio Insights: Small Cap Focus & Mid Cap Focus


What's their worst case scenario? Most management teams are very candid because they know this is important to the company and a lot of times they do brainstorm with us as well. For example, for Q1 a lot of companies are going to be okay. A lot of them don't have insight into Q2. But for us, we look at what companies report later. Some of the off-cycle companies actually are better because when they reported last time, they were already in the midst of this. But it's our job to now to analyze the potential sort of scenarios for Q2 and more important to me the rest of the year. And we see the weaker companies are cutting back. But why? Well most of our companies are making investments for the long term and taking more market share because I firmly believe this is the environment that the stronger will get stronger and that's part of reason our portfolio has done very well. But of course the key is to continue to do well. Brad Newman : Right. With all of that information that you've gathered, what's your thinking behind how you're positioning the portfolio? How would you describe how it's positioned right now? Amy Zhang : This portfolio has the potential to do well both in an up market and down market. And I'm glad that with this terrible pandemic there's a silver lining that shows that the portfolio has been crash tested. The high-quality and growth companies were continuing to do what companies with very strong moats and very strong balance sheets, do and do it well. And again, high growth and high quality, which is a hallmark of our strategy, I think is very important. This is a time for them to gain more market share and then they will come out of this with more prominent position and high margins because this is time that other companies may be cutting back. They can still selectively hire and that's very important. But there are always a few losers, so some of the companies are weaker, their weakness is more exposed, right? But that's a very small portion of the portfolio, but we have a big watch list. I'm very excited to

use this opportunity to upgrade our portfolio so we will come out even better after this rebound. Again, it's really about mission critical. I have used the analogy before, motorboats versus sailboats. The way I think about motorboats, our companies are not really dependent on the overall economy. They are part of the solution. So those companies are really about their own idiosyncratic drivers, less of the macro. And our secular weighting, it’s still health care. But the key is to be proactive because I know now health care all of a sudden is in favor, which is apparent why it should be. Even after this pandemic made people realize how important it is. It's both health care. It's both from an investment point of view. One, it's defensive, but it's also high growth in the companies that we invest in. And also, it's largest dispersion between winners and losers. We're still very well positioned in my opinion. But we're also very selective with tech and consumer. Our largest positions are the ones that will not have earnings risk, they will have scarcity value. We'll also look at companies that are going to be oversold in tech and consumer that long-term trajectory is still in tech. And so we're very excited about that as well. Brad Newman : So, that thinking about positioning the portfolio for the crisis has obviously served you well during the pandemic, but can you talk about how your position for the future as maybe the crisis fades away a bit and as we look longer term so maybe just talk about that long-term view? Amy Zhang : We’re always long term, right? We have a three to five-year investment horizon and I'm positioning the portfolio so it will have the potential to do well, both in upside and downside. It means the key for me is to really optimize the right offense and defense. And that's what I do day in, day out with my team. So it's really about stock selection and that's a lot of our forte. Because I don't think even coming out of this, it's not going to be the rising tide lifts all boats. So we still think about a long term and the way I think those compounders that will help build wealth for clients over the long term.

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