4Q2019 – U.S. Small Company Growth Commentary

In the fourth quarter, balance sheets were sound and our portfolio metrics compared favorably to the Russell 2000 Growth universe.

  • During the fourth quarter of 2019, the Polen U.S. Small Company Growth Composite Portfolio (the “Portfolio”) returned 4.12% gross of fees versus a return of 11.40% for the Russell 2000 Growth Index (the “Index”) in the same period. For the full year 2019, the Portfolio returned 22.73% gross of fees versus the Index return of 28.50%.
  • Index performance was primarily driven by companies with higher volatility and leverage, and weaker profitability, in contrast to the types of companies that the Portfolio seeks to own.
  • We believe that the companies we own remain healthy. For the trailing twelve months, they have delivered 17% revenue growth on average with both solid earnings and cash flow conversion. Return on invested capital (ROIC), the key metric we use to evaluate the health of our investments, was about 17%. This figure is favorable compared to the average ROIC for the broader small cap universe, which is negative.
  • Balance sheets for our holdings, which average 28% debt to total capital, also remain sound in our view, and efficiency metrics for our companies indicate continued improvement. These portfolio metrics compare favorably to the Russell 2000 Growth universe, where over 40% of the companies are unprofitable.

Read the full commentary here