The Polen Capital U.S. Small Company Growth strategy seeks to achieve superior long-term performance by focusing on dynamic companies with low to moderate risk and the potential for sustained double-digit annual earnings growth.
“We believe that consistent earnings growth is the primary driver of intrinsic value growth and long-term stock price appreciation,” explains Tucker Walsh, U.S. Small Company Growth Portfolio Manager. “Accordingly, our efforts focus on identifying and investing in a concentrated portfolio of high-quality small growth companies that are able to deliver sustainable, above-average earnings growth.”
The strategy concentrates primarily on U.S. stocks with market capitalizations in the range of about $500 million to the largest stocks of the Russell 2000 (about $3 billion), although it may also invest in some foreign companies through ADRs (American depositary receipts).
The primary objective is to maintain a high conviction portfolio of about 25 to 35 stocks with robust or increasing margins. The Portfolio tends to have greater allocations to stocks of the faster-growing industries, such as the technology, health care and consumer sectors, although we look for unique growth opportunities across all sectors.
The strategy concentrates on small, growing companies with the potential for sustained growth of earnings and revenue. The process is entirely bottom-up and relies heavily on new idea generation. This is done through a combination of generating organic ideas, developing bottom-up themes, and using front-end screens. We build our portfolio through a disciplined and active management approach:
“Based on our philosophy, we define risk as the permanent impairment of capital,” explains Mr. Walsh. “We primarily seek to control risk at the individual security level. As bottom-up stock pickers, we evaluate the companies in our coverage list one at a time.”
If there is not complete conviction in a company’s ability to deliver solid performance over a period of several years, the stock will not be considered for investment in the Portfolio. The Small Company Growth Team seeks to limit risk in the Portfolio by raising the bar in the selection process, limiting the Portfolio’s holdings to companies it believes believe possess superior business models (high return on equity, strong free cash flow and solid balance sheets) and by limiting the number of holdings.
The fund also addresses risk by typically beginning with a small position in a new holding (1.5 to 3%) and slowly building up that position over time. Typically, the position may grow to 4 to 5% of the Portfolio, with 10% as the maximum position for most holdings unless we feel the risk/reward of the investment is particularly compelling.
The U.S. Small Company Growth Team is led by Tucker Walsh, a veteran of more than two decades in the investment management profession. Prior to joining Polen Capital in 2017, Mr. Walsh spent 10 years as CEO and Head of Portfolio Management at Copper Rock Capital Partners, and nine years as Managing Director and Head of Small Cap Growth team at State Street Research. He also served as a research analyst at Cowen & Co., Merrill Lynch & Company, Cowen Asset Management and Chilton Investment Company.
We primarily seek to control risk at the individual security level. As bottom-up stock pickers, we evaluate the companies in our coverage list one at a time.
Tucker Walsh   |   Head of the Small Company Growth Team & U.S. Small Company Growth Portfolio Manager