Small and Mid Cap Investing in Volatile Markets

TRANSCRIPT

Speaker Question : You mentioned several names like Chegg, Trade Desk, Casella Waste. So when you do get this huge volatility, are you concentrating the portfolio in some of your more high conviction names; and when you are buying, are you doing it in smaller batches and are you using some sort of maybe open orders way below the market, knowing that this volatility is creating opportunities that maybe shouldn't exist? Matt Weatherbie : Yes, at the margin is part of our playbook, which we've tested over past crises in a 25 year history at Weatherbie Capital is in times like this to upgrade – at the margin, upgrade what we believe is the already high quality of the portfolio. So, again, we're not making any radical changes in the portfolio, but at the margin, yes, we're allocating more capital to our highest conviction names, as you indicated. In terms of trading on a day-to-day basis, we don't have any particularly exotic trading strategies of putting in orders well below the market and things like that. But, we have a full-time trader at Weatherbie Capital, we're very experienced at trading small cap growth stocks in my opinion. Speaker Question : Given your approach of only investing in companies at $2.5 billion in market cap or less at initial point of investment, are you seeing some opportunities for new additions out there of great Weatherbie potential companies that perhaps you've missed over the past year or so? George Dai : Yes, we do. At Weatherbie Capital, when we buy, we buy below $2.5 billion market cap. So, we stay true to our investment strategy. Yes, this market meltdown is unpleasant. However, it does create opportunity for us to buy, otherwise, those companies whose market cap exceeded $2.5 billion. So, right now in fact, we are in the middle of the campaign to find some of these high quality companies with strong fundamentals, but now at 30%, 40%, 50% discounts. So, we are like a kid in a candy store, in a sense. So, that's I guess the pleasant part of this unfortunate situation. Speaker Question : I've got a question on being able to take advantage of new purchases. In relation to your position to add to quality positions, how are you doing as far as money on hand relative to what's coming in versus outflows, and are you trimming back some positions in order to take advantage of others that are more attractive to you?

Matt Weatherbie : We generally run a small cash position of 5% or less, so we don't change the cash level in our portfolios dramatically and we have recently been running in the 4%-5% range. So, there has been cash on hand generally to fund new purchases or increase the weightings of the highest conviction names without selling other names. But we wouldn't hesitate to sell our lower conviction names if we thought that were the right thing to do. On an overall basis, our cash flows have been quite stable and with no dramatic either increases or outflows in recent weeks. Speaker Question : Certain companies are going to be impeded by what we're witnessing. Some companies, maybe their long-term prospects are unimpeded. And I look at the portfolio and I recognize, some names of Planet Fitness, the Canada Goose, and those companies, that may be impeded for a period of time, whereas Everbridge or XPO Logistics, maybe companies like that, nothing's really changed. Or maybe it benefits companies like that. So, I would imagine when you guys are doing your weightings what's going on, what are you trying to figure out? Matt Weatherbie : Yes, we take into consideration whether companies are temporarily helped by this crisis, such as Everbridge or companies that are – whose business models are temporarily disadvantaged, like Planet Fitness and Canada Goose. But we believe the market decline has been so swift and severe that it is already priced in the temporary dislocation in, for example, Canada Goose's business model, wherein we believe on the other side of this, such as is already occurring in China where their stores are reopening, Canada Goose has an open-ended opportunity to continue to grow its brand for many years to come. Likewise Planet Fitness. It's a balancing act and we know our companies really well. We believe and we factor all of those things into account when creating our position sizes. Brad Neuman : No, I don't have anything to add. The flows into this strategy year to date have been positive.