Investing in leaders and emerging leaders
We launched the New Capital US Small Cap Growth Fund in 2016, based on our view that US growth equities will be on an upward trend for years to come. The Fund is managed in the same style that this team utilized previously on Small Cap Growth, SMID Cap Growth and Mid Cap Growth portfolios over the last 13 years.
In short, the philosophy is to invest in leaders and emerging leaders by seeking: Quality, Growth, Scalability, and Timeliness.
The Fund is a long-only, small-cap US equity fund, with a high conviction approach; typically holding between 60-80 stocks.
To pare down the universe to best ideas, the team uses a detailed bottom-up process, driven by in-depth industry analysis and proprietary financial modelling.
Each stock in the universe goes through our proprietary investment framework, grading every one based on four categories to produce an overall score.
The first two factors are qualitative, looking at a company’s quality and timeliness – while the managers want to hold the best stocks, they also want to own them at the right point.
This is typically before a positive earnings surprise and over the years, around 75% of holdings in the portfolios every year have met this criterion.
While the first two metrics are subjective and tend not to vary too far, the other two are quantitative and linked to real-time stock prices. One is called the growth grade and the other the market’s growth grade: this focuses on our valuations but tempers them with consensus to ensure funds do not own companies too early.
We tend to be long-term holders of stocks. That said, the team are far more active traders than many peers, looking to benefit from ongoing volatility in stock prices.
On the case for a US growth focus today, our analysis highlights an improving macro backdrop in the country, with interest rates, inflation and energy prices all co-operating with increasingly confident consumers.
A rising interest rate environment is traditionally one in which growth equities outperform value and valuations are also positive at present, at a discount to the long-run average with solid earnings expectations and many businesses sitting on cash balances.