Douglas E. Guffy, Senior Portfolio Manager at Robert W. Baird & Co.: Fundamental Approach to Investing in Smaller Large-Cap Companies
67 WALL STREET, New York - December 4, 2012 - The Wall Street Transcript has just published its Global Investing Strategies Report offering a timely review to serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Global Investing - Investment Risk Management Strategies - Emerging Market Growth Dynamics - High Quality Companies
Companies include: Apple Inc. (AAPL), Fastenal Co. (FAST), Teradata Corporation (TDC), Allergan Inc. (AGN), Continental Resources Inc. (CLR), Dick's Sporting Goods Inc. (DKS) and many others.
In the following excerpt from the Global Investing Strategies Report, an experienced portfolio manager discusses his investment methodology:
TWST: You manage the large-cap growth fund. In general, what type of companies is Baird looking to improve upon?
Mr. Guffy: We are a growth manager, so we are looking for growth-oriented companies. But we are also looking for smaller companies relative to larger ones. We have a general view that it's easier to grow a smaller company than it is to grow a larger one. Consequently, we run a down-cap strategy. If you look at the average weighted market cap in the portfolio, ex-Apple (AAPL), we are investing in companies around 20 billion in size.
I specifically highlight Apple because we are benched to the Russell 1000 Growth Index, and Apple is approximately 8% of it. Remove Apple from the portfolio, and you get a truer picture of what's really going on in terms of investment selection. We are looking for smaller-sized large caps - ones in size like Fastenal (FAST), Teradata (TDC) or Allergan (AGN).
TWST: Define for us what you mean by "growth companies." What are you looking for?
Mr. Guffy: For us, it means couple of different things. First, we are looking at the management team and its leadership. Foremost in that group is the Founder/CEO who has longevity with the company. They have tenure, and they reflect their commitment with large ownership positions. And that's not just a large options portfolio, but actually common stock. With common stock ownership, senior management's interest and shareholder interests are more aligned. For example, executives like Harold Hamm at Continental Resources (CLR) or Robert Kierlin and Will Oberton at Fastenal. That speaks loudly to us about their conviction in the competitive durability of their company.
Secondly, we'll ask what the revenue forecast looks like. How does the company derive its revenue? Do they have a long runway for it? This can develop in a couple of different ways. It can be a footprint story, where the company is expanding its geographical presence. Dick's Sporting Goods (DKS) is a good example where they are...
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