1Q2018 – Focus Growth Commentary

  • During the first quarter of 2018, the Polen Focus Growth Composite Portfolio (the “Portfolio”) returned +3.41% gross of fees compared to +1.42% for the Russell 1000 Growth Index and -0.76% for the S&P 500 Index.
  • Our strong outperformance was driven by primarily what we own, but we also benefited from what we do not own. Company specific positives came from Adobe, Booking Holdings (formerly Priceline) and two of our healthcare companies: Align and Zoetis. From a sector perspective, our lack of exposure to energy, materials and telecom companies also aided our relative performance.
  • Portfolio activity in the first quarter was higher than normal, although most of the changes were incremental adds and trims, with no new purchases in the quarter and only one outright sale.
  • Looking at the macroeconomic backdrop, there are some positive forces already in motion such as accelerating GDP growth in the United States and abroad as well as lower tax rates coming to U.S. individuals and corporations. There are also risks to the current growth acceleration, namely the potential for protectionist trade wars and tariffs as well as higher interest rates.
  • For the first time in many years, there finally seems to be strong corporate earnings growth in the United States. For the full-year 2017, we calculated S&P 500 earnings growth was about 17%, well above its long-term annual average of approximately 7%, and the highest it has been since 2010. Our Portfolio also saw an acceleration with weighted average earnings growth in the low 20% range. Over the long haul, we continue to expect our Portfolio to compound earnings at roughly a mid-teens rate, which should be more than double the growth rate of the S&P 500.