Podcast: Millennial Investing Talks Small Caps with Rayna Lesser Hannaway
How a selective, research-driven approach can help identify mispriced, misunderstood companies in an inefficient space
Going beyond with the Polen Small Company Growth Team
Our Small Company Growth strategies are driven by the concept of disruption with discipline. We believe that in order to capitalize on the opportunity set in the small- and mid-cap categories, we must employ a thoughtful approach to investing by looking to the long-term and structuring our portfolios with innovative companies we view as well-positioned for the future.
Core to our philosophy, we target companies that strategically invest in culture, talent, organizational agility and innovation that have the potential to achieve long-lasting success. By seeking disruptive business models through a highly-disciplined process, we are able to create concentrated portfolios of our “best-idea” companies that we believe can stand the test of time.
Expertise, Experience & Analysis
The Polen Small Company Growth Team is comprised of seasoned analysts who utilize a team-based selection process that focuses on close collaboration to research and identify opportunities that we believe are primed for longevity and success in their investment space.
Located: Boston, MA
Head of Team: Rayna Lesser Hannaway, CFA, Portfolio Manager & Analyst
Average Team Member Experience: 13 years (as of 12-31-2022)
Our Investment Philosophy
Concentrated Portfolio: High Active Share + Best Ideas
Risk Management: Durable Business + Sustainable Competitive Advantage
Hold Period: Long-Term Time Arbitrage
Outcome Orientation: Absolute Return Mentality
Meet the Team
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Philosophy
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People
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Process
We seek companies that offer infinite opportunities through long-term compounding, and believe this combined with our collaborative, team-based approach can provide great advantages for our clients.
—Rayna Lesser Hannaway, CFA
Head of Team, Portfolio Manager & Analyst
Polen Small Company Growth Strategies
Our Strategic Approach
Polen Small Company Growth Stock Selection Process
Our Small Company Growth Team selects stocks through a distinctive Flywheel approach, focused on identifying investments that display a specific set of strategic elements that we consider essential to long-term value generation. Each company we assess endures a rigorous research process, and we must believe they meet all five flywheel criteria to be chosen as an investment.
There is no guarantee that companies included in the Portfolio will exhibit all of these qualities.
The Polen Small Company strategies typically hold 25 to 40 companies that the team feels are the highest-quality growth names. Examples as of 12/31/2022 include:
Bumble is a leader in the large and growing online dating market. The company has a compelling brand and is uniquely positioned with women at the center, making the first move. This is a ~$5 billion annual market that is accelerating in growth as the pandemic helped to remove the stigma associated with online dating. We are also excited about the investments they are making to broaden their exposure beyond dating (platonic friendships, business networking) that have the ability to widen Bumble’s total addressable market.
Paycom is a leader in the human capital management/payroll software industry that continues to take market share from long-standing incumbents. Customers love Paycom for its integrated software offering with robust self-service capabilities and excellent service the Paycom team delivers. The company has a highly repeatable sales process and a solid track record for selling more to existing customers while acquiring new users. Paycom is an emerging leader in a large addressable market where we believe they are only just beginning to scratch the surface.
Five Below is a leading high-growth value retailer offering trend-right, high-quality products loved by tweens, teens, and beyond. The company offers a fun treasure hunt shopping experience and with most items priced between $1 and $5, its offering is compelling to a wide range of customers with different economic backgrounds and in different macro environments. The things that have us most excited are the company’s potential to significantly expand its store base, its compelling store economics, the investments the company is making to remodel its stores, and its value orientation in difficult economic environments.
Dechra Pharmaceuticals is a leading global veterinary pharmaceuticals company, specializing in areas such as endocrinology, dermatology, analgesia, and pain management, among others. Despite only having a fraction of the market share of the overall animal health market, the company has deep competitive moats which we believe will lead to durable profitable growth over the long term. The company has a demonstrated track record of success in developing, acquiring, and scaling within these aforementioned niche segments of animal health, and this has translated into organic and M&A driven growth we expect to persist into the future.
Recent Small Company Growth Perspectives
Podcast: Orion’s The Weighing Machine with Rayna Lesser Hannaway
High conviction in quality small- and mid-cap businesses, “high hopes” for a path to recovery
4Q2022 – U.S. Small Company Growth Commentary
We believe that our focus on high-quality, well-positioned growth companies will generate exceptional long-term opportunities
4Q2022 – U.S. SMID Company Growth Commentary
We are utilizing weakness in the period to lean into attractive and favorable risk/reward tradeoff opportunities
4Q2022 – Global SMID Company Growth Commentary
We remain focused on companies that can compound earnings and cash flows over the long term, independent of economic cycles
4Q2022 – International Small Company Growth Commentary
We believe that in this environment, the stellar small-cap companies will have a better potential opportunity set for value-added acquisitions
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A Collaborative & Research Driven Team
Polen Capital Management, LLC is an independent registered investment advisor.
The information is provided for illustrative purposes only. Opinions and views expressed constitute the judgment of Polen Capital as of the period indicated , may involve a number of assumptions and estimates which are not guaranteed, and are subject to change without update. Although the information and any opinions or views given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness or accuracy. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without update, including any forward-looking estimates or statements which are based on certain expectations and assumptions. The views and strategies described may not be suitable for all clients. This information does not identify all the risks (direct or indirect) or other considerations which might be material to you when entering any financial transaction.
Holdings are subject to change. The holdings, as well as other data, are as of the period indicated and should not be considered as a recommendation to purchase, hold or sell any particular security. There is no assurance that any of the securities noted will remain in a portfolio at the time you review this information. Actual holding and percentage allocation in individual client portfolios may vary and are subject to change. The securities discussed do not necessarily represent the entire portfolio. It should not be assumed that any of the holdings discussed were or will prove to be profitable or that the investment recommendations or decisions we make in the future will be profitable. A list of all securities held in this portfolio in the prior year is available upon request. Past performance does not guarantee future results and profitable results cannot be guaranteed.
Absolute Return: is the percent amount that an asset rises or declines in value in a given period. Active Share: is a measure of the percentage of stock holdings in a manager’s portfolio that differs from the benchmark index. Excess Return: returns achieved above and beyond the return of a benchmark.
