Fidelity Focused Stock (FTQGX) has been a very strong performer. Stephen DuFour has managed Fidelity...
William Blair: Small Cap Contrarians
07/03/2017 2:50 am EST
The $409 million in assets William Blair Small Cap Growth N (WBSNX) fund is steered by three portfolio managers: Mike Balkin, Karl Brewer and Ward Sexton; their investment style might best be described as contrarian growth in the small-cap space, explains fund expert Walter Frank, editor of Moneyletter.
Using fundamental bottom-up analysis of a company, its competitors, suppliers, and/or customers, the managers select stocks based on a number of growth criteria.
A company should be — or have the potential to be — a market leader in its field. It should have a distinctive advantage compared to competitors, such as proprietary products or processes, unique distribution system, superior brand name, or exceptional finances, and operate in a strongly growing industry.
The managers also look for strong marketing capability and a solid management team. The latter is especially important since the companies the team assesses are very small and often do not have a lot of history.
They look to purchase firms before they are recognized by Wall Street, or when they are temporarily out of favor.
“We believe broad investor focus on near-term events creates opportunities for investors such as ourselves who analyze companies over a long-term time horizon to achieve excess returns,” they wrote in a recent report.
Looking at the portfolio, 14% of assets fall into the mid-cap range, with 56% in small caps, and 30% in microcaps. The managers will sell a stock when it gets too large, and also if growth prospects have weakened.
Compared to the benchmark (Russell 2000 Growth Index) the fund was recently underweight in materials and industrials, and overweight technology and consumer staples.
For the trailing five years, William Blair Small Cap Growth N returned 14.8%, outpacing 96% of its small growth peers. Its 28.8% return for the trailing year places similarly.
However, looking back at calendar years over the past decade, it has landed in the basement a few times (which is not unusual for a long-term “contrarian” investor).
Looking forward, the managers note that despite the investor optimism that prevailed in the beginning of this year, “many risks remain to the economic recovery which is now over eight years old."
Related Articles on FUNDS
I think we’re finally seeing the bottom forming in MLPs, which is good news for JPMorgan Aleri...
When we recommended large-blend Parnassus Core Equity Fund (PRBLX) a year ago, what stood out most w...
On November 1, we featured Doug Hughes' recommendation for investment banking firm Oppenheimer Holdi...