GSHD - Polen U.S. SMID Company Growth Q4 2023 Portfolio Manager Commentary

2024-02-22 20:22:00 ET

Summary

• Polen Capital is a global independently-owned growth equity boutique, led by an experienced team of investment professionals who are committed to preserving and growing the assets of our clients through a prudent and disciplined long-term investment approach.
• During the fourth quarter, the U.S. SMID Company Growth Composite Portfolio outpaced the Russell 2500 Growth Index.
• Transaction activity this quarter included six new positions, Medpace, Core & Main, Pool Corp., BioTechne, Generac, and MarketAxess.

Takeaways

• During the fourth quarter, the U.S. SMID Company Growth Composite Portfolio (the "Portfolio") outpaced the Russell 2500 Growth Index (the "Index").
• The market experienced another drastic shift into the year's end with growing evidence that the rate hike cycle was nearing an end and a growing consensus expectation for easing financial conditions in 2024.
• Since the most recent low in October, the Russell 2500 Growth has outperformed the broader market ¹ by over 6%, and SMID cap stocks remain historically cheap relative to history and large cap peers.
• Transaction activity this quarter included six new positions—Medpace ( MEDP ), Core & Main ( CNM ), Pool Corp. ( POOL ), Bio-Techne ( TECH ), Generac ( GNRC ), and MarketAxess ( MKTX ) —along with modest additions and trims to existing holdings. We exited one position—The Trade Desk ( TTD ) — during the quarter.
• We favor businesses with robust free cash flow, persistent growth, and high returns on capital, and we always seek to own companies that we believe are undervalued relative to their long-term compounding potential. As always, we believe that maintaining our focus on high-quality growth companies that are well-positioned to drive cash flow and earnings growth over the next five years will generate longterm performance.

¹ Broad U.S. equity market as measured by the S&P 500 Index. The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher. Periods over one-year are annualized. Performance figures are presented gross and net of fees and have been calculated after the deduction of all transaction costs and commissions, and include the reinvestment of all income. Please reference the GIPS Report which accompanies this commentary. The commentary is not intended as a guarantee of profitable outcomes. Any forward-looking statements are based on certain expectations and assumptions that are susceptible to changes in circumstances. Opinions and views expressed constitute the judgment of Polen Capital as of the date herein, may involve a number of assumptions and estimates which are not guaranteed, and are subject to change. Contribution to relative return is a measure of a securities contribution to the relative return of a portfolio versus its benchmark index. The calculation can be approximated by the below formula, taking into account purchases and sales of the security over the measurement period. Please note this calculation does not take into account transactional costs and dividends of the benchmark, as it does for the portfolio. Contribution to relative return of Stock A = (Stock A portfolio weight (%) - Stock A benchmark weight (%)) x (Stock A return (%) – Aggregate benchmark return (%)). ...

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