1Q2024 - Focus Growth Commentary
We are long-term owners of businesses who seek consistent earnings compounding.
- U.S. equity markets started 2024 optimistically. Expected rate cuts by the U.S. Federal Reserve (the “Fed”), a more likely soft landing for the U.S. economy, and all things generative AI-related spurred market enthusiasm. During the period, the Polen Focus Growth Composite Portfolio (the "Portfolio") trailed the Russell 1000 Growth Index (the “Index”) and the S&P 500 Index, net of fees.
- Valuations of U.S. large-cap equities have been rising, and our research suggests that valuations are on the “higher side of normal.” We also observe that some large Index positions in companies like NVIDIA and Tesla have extremely high valuations relative to the growth we expect from them, which we discuss in detail.
- The top relative contributors to the Portfolio’s performance were Apple, Tesla, and Amazon. The top absolute contributors were Amazon, Netflix, and Microsoft. The largest relative detractors in the quarter were NVIDIA, Adobe, and Meta. The largest absolute detractors were Adobe, Zoetis, and Nike.
- This quarter’s trading activity was higher than usual as we trimmed Adobe and ServiceNow and added to positions in ThermoFisher Scientific, Visa, Nike, Abbott Laboratories, and Zoetis based primarily on valuation. We purchased a new position in Paycom and eliminated our position in PayPal.
- We aim to invest in what we view as more predictable, highly competitively advantaged growth businesses that can drive the earnings growth we require to deliver long-term returns in line with our long-term, mid-teens track record.
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