3Q2018 – Focus Growth Commentary

  • During the third quarter of 2018, the Polen Focus Growth Composite Portfolio (the “Portfolio”) returned 10.55% gross of fees versus 9.18% for the Russell 1000 Growth Index and 7.71% for the S&P 500. Year to date, the Portfolio returned 24.68% gross of fees versus 17.09% and 10.56% for the Russell 1000 Growth and S&P 500, respectively. Microsoft, O’Reilly Automotive and Visa were top contributors to performance this quarter. Leading detractors were Facebook, Booking Holdings and NVIDIA.
  •  The Portfolio has seen accelerating revenue and earnings growth in 2018, as has the broader market. The revenue acceleration is purely fundamental, but we believe that
    much of the earnings acceleration has been due to lower corporate tax rates. Going forward, we expect the Portfolio to return to its historical mid-teens earnings growth rate as tax benefits are lapped and effects of the recent strength of the U.S. dollar flow through our companies’ income statements.
  • We established a new position in NVIDIA during the third quarter and added to our Starbucks position. We trimmed our weightings in Adobe and Oracle to fund the NVIDIA purchase and modestly reduced our position in Align Technology due to valuation.
  •  Despite a relatively flat yield curve, short-term interest rate increases, and upcoming Fed balance sheet shrinkage, we believe the U.S. equity market was quite strong this quarter.
    China tariff volleys were not enough to offset the positives of healthy GDP growth in the United States, lower taxes and strong consumer confidence. We have some concerns though, which include protectionism, aggressive world leaders, large budget deficits and the rise of trend-following strategies.

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