Small Cap Investing in Volatile Markets


We invest in high growth, high quality companies that are less economically sensitive, as Brad alluded to. They can control their own destiny. Also, our companies generally have very strong balance sheets with very low debt. I use the analogy of motorboats versus sailboats. Motorboats are the companies driven by innovative, fundamental drivers versus sailboats that are very much more economically sensitive. To that extent, we, think they’re well positioned we can weather the storm of market volatility fairly well.

which is something we look for, and I know they have the capability to do COVID-19 tests.

The stock has performed strongas a result because even with COVID-19, we will need to have flu testing. And now recently they just announced they are going to produce test kits for COVID-19. And going forward, the next flu season, they are going to do a test—a combination test that can test both flu and COVID-19 for the next flu season on their platform. Clearly those are idiosyncratic drivers. Whereas, of course, they also have very strong fundamentals. BN: Wow. Talk about being at the right place at the right time. That was certainly a good holdingand has benefitted performance. And speaking of performance, the strategy has performed strongly relative to its benchmark YTD. Why do you think it’s done well? AZ: I believe the performance is a testament to our unique strategy, which is resilience. We have had an attractive upside/downside ratio for two years. But just as I mentioned before, it’s really about investing in what we believe are exceptional growth companies that also have high financial quality because liquidity and cash are king. And as they are less economically sensitive and they can—more defensive. but also have idiosyncratic drivers, which will really stand out in this market. AZ: This is a crisis and we are not taking this lightly. But just like any other crisis, where there is crisis there’s opportunity, and I think that the impact on the markets and our portfolio is going to be temporary. And we are working very hard on risk/reward and stock selection as we are looking for companies that are trading below their intrinsic value. There will be a light at the end of the tunnel and we want to be well-positioedn for a bounce- back, which will happen. BN: Any final thoughts, Amy, before we move onto Q&A?

BN: Okay. Great. Can you discuss the portfolio positioning and any subtle shifts that you’ve made recently within the portfolio?

AZ: Since the beginning of the year, I felt like the COVID-19 virus could spread to the U.S. And also, I felt this should be the year for health care. To that extent, I positioned the portfolio in a very defensive way and in a more recession-resilient sense, looking for company specific drivers that are idiosyncratic, that will not be affected by macro. I raised more cash because now we have approximately 5% to 10% cash, which is big for our strategy. But it’s very important to have some dry powder in this market to take advantage of volatility based on risk/reward potential. BN: It sounds like you were being very proactive. You’ve historically invested a lot in innovation, primarily in the technology and thehealth care sectors. Is the portfolio still positioned that way? AZ: Yes. Our largest sector weight is currently health care. But I trimmed some tech because I think tech is relatively more cyclical than health care. And we want to invest in companies that are part of the solution to COVID-19. One example of the health care companies that’s one of our top holdings is Quidel Corporation. Quidel is a diagnostic testing company that has a very broad platform, but really specializes in respiratory testing and the bulk of that is flu testing.

BN: Thanks a lot, Amy. Operator, we’ll now open up the phone lines for questions, please.

But importantly, we had the premise that this is going to be a strong flu season. And there’s always optionality,

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