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Polen Capital Management, a value-driven, concentrated, long-term investment management firm, published its ‘Polen Focus Growth’ fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A return of 10.15% was recorded by the fund for the Q4 of 2020, just an inch below both its S&P 500 benchmark that delivered a 12.15% return, and Russell 1000 index that returned 11.39%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Polen Focus Growth, in their Q4 2020 Investor Letter, said that they acquired a position in Illumina, Inc. (NASDAQ: ILMN) because the company met their specific standards in choosing a stock to own. Illumina, Inc. is a premier developer and manufacturer of life science tools and integrated systems. It has a $428.64 billion market cap. For the past 3 months, ILMN delivered a decent 37.51% return and settled at $428.64 per share at the closing of February 4th.
Here is what Polen Focus Growth has to say about Illumina, Inc. in their investor letter:
"We made just one trade in the fourth quarter, initiating a new position in Illumina. The company manufactures DNA-sequencing equipment and the consumables for this equipment, which enable DNA to be sequenced in a timely, accurate, and affordable way. More simply, we view Illumina as the leading operating system for DNA sequencing. Mapping human DNA in an accurate, timely, and affordable manner is difficult. DNA sequencing is also important for early diagnosis and targeted treatment of many diseases. Illumina has over 70% market share of its long-term $20 billion+ sequencing market due to its leading technology platform that is difficult to replicate, the trust it has built with customers, and its sticky systems that customers are reluctant to replace.
We often say that it can take years for a company to make its way through our investment process and into the Portfolio, and Illumina is a great example of this. We studied Illumina for six years prior to investing. The biggest hurdle has been valuation over most of this period. We felt there was an opportunity to invest shortly after Illumina announced an $8 billion acquisition of Grail, a company that was founded inside of Illumina and later spun out. Grail has developed a unique blood test to diagnose more than 50 life threatening cancers at an early stage so they can be treated earlier and with far less mortality. Illumina’s stock dropped significantly following the Grail announcement because it is a sizeable acquisition that will bring down Illumina’s margins in the short-term. We viewed this as an opportunity because we do not believe Grail negatively impacts Illumina’s core sequencing business going forward. In fact, we believe Grail has a large opportunity to become a differentiated and leading early-stage cancer testing company that may be better positioned to realize this opportunity as part of Illumina.
We believe Illumina exercised sound judgment in both spinning Grail out four years ago and then moving to acquire the business today. While Grail will lower Illumina’s margins and return on equity meaningfully in the short-term, we remain focused on Illumina’s core sequencing business and the company’s long-term earnings power. We do not believe Grail would negatively impact the economics of Illumina’s core business even in a scenario where Grail fails to execute on the large opportunity in front of it. And, of course, if Grail can continue executing on its vision to become the leader in early-stage cancer testing, Illumina’s business and sequencing platform could become even larger and stronger."
Copyright: mikkolem / 123RF Stock Photo
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