Investment Strategies

INTERVIEW: Polen Capital Raises Stakes In Active Vs Passive Debate With High Concentration Fund

Tom Burroughes Group Editor London 22 May 2015

INTERVIEW: Polen Capital Raises Stakes In Active Vs Passive Debate With High Concentration Fund

This publication recently interviewed the manager who believes that high-conviction investment and a concentrated portfolio is essential for those paying for genuine active management of their money.

There isn’t much doubt on where the asset management brains at Polen Capital sit on the “active-versus-passive” debate. One of this Florida, US-based firm’s funds, launched earlier this year, has just 29 names in the portfolio. Often this publication will come across funds where the size is nearer to 50 or more.

The Polen Capital Focus Global Growth Fund, which is a UCITS-compliant vehicle established in late January for non-US investors, is a product of Polen’s Global Growth Equity strategy, originally launched on 30 December last year. The newest fund is designed to be low turnover. Another fund, the Polen Focus US Growth Fund, since inception has a turnover of about 25 per cent and the new fund would be expected to demonstrate similar characteristics over time.

“We don’t think that owning anything makes sense if you are not willing to hold it for at least five years,” Julian Pick, a lead fund manager with Polen Capital's Global Growth Equity strategy, told this publication.

Polen Capital is not the first firm of its kind to make the point that if active management is to justify the fees, managers must have firm convictions and not just hug a benchmark. With low-fee funds such as ETFs expanding rapidly in recent years and pressure on fees coming from regulation and new business models, an active manager who isn't really very active won't cut it with clients. Rathbone Unit Trust Management last year said it was cutting out all passive equity exposure and was moving to concentrated portfolios to boost chances of winning that all-important "alpha".

Polen Capital says it has broken new ground by disclosing not just the most up-to-date number of active shares on its factsheets but also, giving the highest, lowest and median active share figures of its strategies since inception – this data will be published from the third quarter of this year. Providing these historical active share numbers and putting them in the context of past events and cycles is just as important as providing historical performance numbers, Polen Capital believes.

“We have just 29 of the best businesses that we could find on planet Earth,” Pick said.

With its focused portfolio, the investment team is able to take a very disciplined approach in the selection of each holding. Every business must meet the same strenuous criteria regardless of sector or geography, he said.

The holding period of firms in the new fund, which is benchmarked against the MSCI AWAI index, will also reflect its high-conviction, low-turnover philosophy.

Unsurprisingly, the Polen Capital approach comes at one end of a debate that continues in wealth management – is it worthwhile paying a manager a fee to obtain superior performance or is this a mug’s game, given how even the cleverest managers find it hard to repeat such cleverness year after year in liquid, well-analysed markets? 

What is clear is that Pick believes his firm is making a strong statement about what its clients pay for: the funds it operates will not be hugging any benchmarks. And the concentrated approach means a firm can make up 3.5 per cent of a portfolio holding or more. According to a February factsheet of the newest fund, card firm Visa accounted for 5.01 per cent of the portfolio, with Google making up 4.71 per cent and Nestle, the Swiss-listed drinks and foods group, 4.66 per cent.

“If you are an active fund manager holding hundreds of positions, it is very hard for those positions to add much at all other than to be a distraction and adding costs,” Pick said.

“To do the right thing by the client, you have to be better than average and do something different. We are best suited to clients who want to invest for the long haul and to the idea that there is no such thing as an investment `black box’,” he said.

Polen Capital intends to register the fund in a range of global markets, including those in Asia and the Middle East.

Over the long haul, investors will have a clear chance to see if Polen's concentrated approach pays off - or not.

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