Rayna Lesser Hannaway, portfolio manager of the OYSTER US Small and Mid Company growth fund discusses applying the Polen investment philosophy to U.S. small companies with Peter Stockall.
Polen Capital has been around since the 1980s. The track record for the Polen Focus Growth strategy goes back to 1989, so it’s 30 years of investing as business owners in that kind of mindset. The U.S. Small Company Growth strategy that I manage is a little more than three years old and employs the same 30+ year Polen philosophy and process. We have a very collaborative approach to find the best companies in our category for our portfolios. The Small Company Growth Team is a team of six people. I co-manage the U.S. Small Company Growth strategy with Tucker Walsh and we’re seeking to own the best companies in our category.
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We have very high hurdles for a company to get into the portfolio. We run a very concentrated portfolio, especially for the small-cap category. We own 25 to 35 securities, so we have very high active share and high conviction in the companies that we own. To have that conviction, we need to have a framework that we call our investment flywheel. That flywheel starts with having a strong competitive position and tailwinds from a long-term trend. It also means the business must have a repeatable sales process where they can continue to generate organic growth, robust margins and cash flow. It must also be run by an effective management team that is skilled at reinvesting back into the business to continue that growth and maintain or strengthen the competitive position. That’s why we consider it to be a flywheel.
We own 25 to 35 securities, so we have high conviction in the companies that we own.
We generally look out 3-5 years with all our investments. But we want to buy a company that is benefiting from a trend that will persist for longer than 3-5 years. We want to see appropriate appreciation over our holding period. An important thing to note is that really well-run businesses might have some short-term hiccups. But, in our experience, if the management team is agile and they have a culture that can adapt to situations, these businesses can find ways to continue to grow and also generate the cash that’s necessary to maintain the strong business model. It really depends on the company, and we feel that the businesses that we own are well suited to be able to not only survive in this period, but in some cases really thrive due to the current conditions.
...even really well-run businesses might have some short-term hiccups
We really believe that some of the trends that were in place before the pandemic will probably get an accelerator effect as people have had to learn how to work a little bit differently. Many of us are working remotely, and that’s going to create different habits. One of the areas that we believe will continue to benefit is movement to the cloud. In our portfolio, we have a company which provides cloud-based solutions to property managers and the legal industry and serves small to medium-sized businesses.
Founded in 1979 and based in Boca Raton (FL, USA), the firm manages US, Global and Emerging equities strategies with a focused, fundamental growth, long-term approach
The firm had $66.7bn AUM at the end of April 2021.Visit Polen Capital