Polen Capital Management's Focus Growth Portfolio was able to outperform the market again in 2015. Read their quarterly commentary to learn how leveraging Alphabet Inc.'s (formerly Google) weak 2014 share price helped them achieve that feat.
"Commentary
During the full year of 2015, our Portfolio returned 15.88% gross of fees, outperforming the Indices by awide margin and ranking in the top 1% of our peer group.* The Russell 1000 Growth and S&P 500 indices were up 5.67% and 1.38%, respectively, during the year. Our Portfolio also had positive returns every quarter of the year, including the third quarter when the market declined significantly.
Calendar year 2015 was the seventh straight year of positive market returns, but those gains were modest compared to the strong returns that have been commonplace during most of this period. In fact, were it not for a strong rebound during the fourth quarter, the market would have ended the year down for the first time since 2008. During the fourth quarter, the Russell 1000 Growth and S&P 500 returned 7.32% and 7.04%, respectively. Our Portfolio was up 8.10% during the fourth quarter.
Although the market managed to finish the year in positive territory, 2015 was a distinctly different year than the many years preceding. As the strong dollar, declining commodity markets and tepid economic growth outside the U.S. (particularly in emerging markets) all weighed on already modest underlying economic growth, it seemed that fundamentals were more in focus during the year. That certainly played to our advantage as the mid‐teens earnings per share growth of our Portfolio, despite the aforementioned headwinds, clearly contrasted with the sales and earnings decline of the broader market. S&P 500 revenues and earnings fell during both the fourth quarter and the full year of 2015 and we calculate that on a trailing 12‐month basis nearly half of the companies in the S&P 500 had earnings decline during the trailing year.
At the risk of sounding like a broken record, we believe that we have been able to outperform the market so consistently over our 27‐year history because owning a concentrated portfolio of the highest quality growth companies drives stronger absolute earnings growth than the broader market can structurally deliver over the long term. This stronger absolute earnings growth ultimately drives stronger absolute and relative returns.
As described in more detail in our 3rd Quarter 2015 Focus Growth Commentary, which we would encourage you to read again, the market goes through short‐term cycles where “what is working” drives stock prices rather than the earnings growth of the underlying businesses. But over time the market, we believe, weighs the underlying earnings and the relationship between earnings growth and returns becomes much clearer. That is why we have consistently done so well over longer time periods and why we tend to do well in years like 2015, when “investing gravity” is taking hold. " Download below to read full report.
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