What's Moving Up in This Analyst Pick's Portfolio?
Jeff Cardon, manager of Analyst Pick Wasatch Small Cap Growth, describes how companies work their way up in the portfolio and discusses a firm that recently broke into his top 10 holdings.
Karin Anderson: Maybe lastly, you can talk about some new companies on your radar or maybe in the portfolio now. You tend to hang on to companies like O'Reilly Automotive for years and years, maybe over 10 years with that holding. So, I'm just interested to hear if there's anything new that you're carrying.
Jeff Cardon: Yeah, Karin. It really is true. We don't turn the portfolio over very much. I was talking to someone last night. They said, "Well, what have you done in the last month?" And I said, "Well, I think I made two trades." I mean, I don't do a lot in terms of trading the portfolio because we're really just trying to find great companies.<TRANSCRIPT>
And like you said, O'Reilly's been in the portfolio for 15 years. Knight Transportation has been in there for 10 years. You go through that top part of the portfolio, and there's a really long length of stay. We're trying to find small companies, and then they grow big. That's the basic thing of what we're trying to do. If that's your strategy, you just have to hold them for a long time.
And so, at the top of our portfolio... Maybe, one way to ask that question is--are there new names that you've been researching for a long time that have been moving up? And so one example of that would be MSCI. It's a name I think Morningstar would know really well, because they have their brand name behind a lot of ETFs.
And so, when I first got in the business, the Russell 2000 Growth Index is what we compared ourselves with. It's still around, 30 years later. And MSCI has built a franchise around international indexes. And so 90% of the American money that gets invested in ETFs for overseas are in an MSCI-branded ETF.
It could be iShares, so they don't control the distribution. It would be say a Barclays, who just sold out that business, would distribute it. But it's got MSCI indexes underneath it, and they get a fee for that. And so if you think about a business that's really interesting because it's a long-run play on international markets. And I believe international markets will do as well and probably better than American markets.
And it's also a play, I think, on ETFs gaining market share. As the financial markets get more sophisticated, people are using different tools. And I think that's a really good tool in international investing. It's not the only tool, but I think it will gain a little bit of market share.
They have 30% operating margins. You just put all that together, and that could be one of these names that 10 years from now, if we talk, it's still there. You know? It's a top 10 holding now, and it's a name we've known for a long time; have been following it. It got put in at a lower weight and it built itself up. And that's how it gets done.
Just to add on to that, we would never find a brand new company, and just like, it's the new number one holding.
Cardon: Our companies tend to get vetted out over time. We think you learn a lot about a company over time and grade. And so they kind of earn their way up the list of the portfolio.
Anderson: OK, great. Well, thank you so much for your time today. Good talking with you.
Cardon: It was fun to be here. Thanks.
Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.