MiB: Growth at an Unreasonable Price
How do you outperform the S&P500 by a 1000 basis points in a year? For Tom Slater, head of the U.S. equities team and long-term growth portfolios at U.K.-based investment firm Baillie Gifford, the answer is “Growth at an unreasonable price.” The firm has over $370 billion in assets under management. Slater is a decision-maker on Long Term Global Growth portfolios, and the U.S. Equity Growth Fund up +115% year to date.
Slater explains how only 4% of stocks account for almost all equity returns. This has three major ramifications for fund managers: The first is their charge to identify those few companies that can be part of that contingency of “Winner take all” companies. His top holdings include many of those firms, including Tesla, Amazon, Shopify, Zoom, Netflix, Alphabet, Chegg, and Mastercard.
The second is how this impacts the sell discipline, making it so important for fund managers, who must think even longer term than they normally tend to do.
Third, a successful fund needs clients who exhibit patience and are willing to ride out the regular periods of volatility and weaker returns. Slater co-manages the Scottish Mortgage Investment Trust, which his firm Baillie Gifford has been managing since 1908. That’s about as much patience as any fund manager could possibly hope for.
He explains why a concentrated portfolio is more likely to outperform than a closet indexer, and that active share is important in the pursuit if alpha. The Active fund industry has done a poor job justifying its existence, in part driven by high fees that have not been commensurate with its performance. The industry needs to both lower its fees and improve its performance if it wants to stay in the game.
A list of his favorite books are here; A transcript of our conversation is available here.
You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.
Be sure to check out our Masters in Business next week with Jeff Poggi, co-CEO of McIntosh Group, manufacturer of audiophile components widely regarded as among the finest in the world. Despite the pandemic, the company notched their best sales year in their 70-year history.