2Q2018 – Focus Growth Commentary

  •  During the second quarter of 2018, the Polen Focus Growth Composite Portfolio (the “Portfolio”) returned 9.06% gross of fees compared to 5.75% for the Russell 1000 Growth Index and 3.43% for the S&P 500. Year to date, the Portfolio has returned 12.78% gross of fees versus 7.25% for the Russell 1000 Growth and 2.65% for the S&P 500.
  •  Trade and tariffs took center stage in the quarter as the Trump administration proposed and began to implement tariffs on certain goods entering the United States, and other countries announced retaliations or potential retaliations. If tariffs do not lead to benign negotiations, some companies that find themselves caught in the crossfire may see cost and/or revenue headwinds. At this point, we don’t see any major impacts to any of the holdings in the Focus Growth strategy. That said, we believe next year’s corporate earnings growth should slow from any tax-aided boost experienced this year, and there could
    be additional headwinds from trade tensions escalating, short-term interest rates rising in the United States and the yield curve flattening.
  • Year to date, earnings growth for the market and our Portfolio remain robust, even if aided by the corporate tax cut in the United States. We think this is likely to continue for the second half of 2018, though we do expect slower growth for most companies in 2019. We would expect our Portfolio’s earnings to return to a more normal mid-teens growth rate in 2019, which is still well ahead of our expectations for index earnings growth in
    2019. Over the last year, our Portfolio has generated roughly 25% earnings growth versus 19% for the S&P 500.
  •  Align Technology and Adobe Systems were again top performers, similar to the first quarter. NIKE was also a top contributor during the second quarter as the temporary headwinds in its business seem to be subsiding. Leading detractors were Starbucks, Oracle and Booking Holdings.
  •  Trade activity returned to the more subdued level typically experienced in our portfolios. The only trades in the second quarter were a minor trim of Adobe and a minor addition
    to Microsoft.

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