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Polen Capital’s new form of ‘value investing’

Montgomery-backed global equity manager expanding Australian presence

Polen Capital has an enviable track record of delivering overall out-performance and averaging double-digit annual returns for more than 33 years. Headquartered in Boca Raton in Florida, USA, the firm manage $80 billion in assets and provide investment strategies to wholesale & institutional clients around the globe.

The Inside Investor recently met with Simon Gregory and Paul Williams from the Polen Capital investment team to discuss the “Polen style” of investing. Speaking about the expansion into Australia, Williams says, “we launched the first fund, Global Equities, about twelve months ago and expanded that to take into consideration the Global Smaller Mid-cap fund, late last year. The plan is to follow this with an Emerging Markets fund, all coming through an Australian unit structure,” adds Williams.

House founder David Polen is the architect behind the investment philosophy, which has all the hallmarks of value investing. Being a disciple of Ben Graham, Polen wanted to apply the value investing characteristics, but in a slightly different way. Taking the concept of a “margin of safety,” he applied it through quality screens to a more “growth-quality” portfolio.

  • Williams says: “Polen truly believes in the power of concentration. Not only can you have excellent returns by owning the best-quality companies, but also, he felt he could use that as a risk reduction tool. The fiftieth best idea is not as good as your twenty-fifth idea. He also believed in the power of patience, allowing compounding to grow and build wealth.”

    Over the firm’s 34-year track record, he says, this investment style has been proven to work. “The EPS of the portfolio has been around 15 per cent and we have generated an annualised return to our clients of around 15 per cent per year,” says Williams. The philosophy of blending a concentrated portfolio with high-quality growth-focused companies, with a typical holding period of several years, has been tried and tested. Williams says the philosophy has withstood the tech bubble bursting, the GFC, Covid and the current Ukrainian crisis.

    Investment specialist Simon Gregory explains how “the portfolio has an inbuilt downside protection mechanism so that when markets sell-off, the portfolio is able to preserve capital, such that when markets bounce back the portfolio is a much better position to capture the upside recovery.”

    When asked how the portfolio behaves in an inflationary environment, Gregory says, “being a bottom-up investor, macro factors such as the Ukrainian crisis or rising inflation, top-down factors, they affect the entire market. We don’t build a portfolio to withstand top-down factors: what we believe is that we have the most resilient companies.

    “Our portfolio doesn’t have any exposure to companies that rely on input pricing, such as fossil-fuel companies such as oil stocks, or cement /aluminium manufacturers. These companies don’t pass our fundamental screens. In the companies we hold, the principal input is human capital, ingenuity, and hard work, rather than large input of raw materials,” says Gregory. “We typically don’t hold financials or large banks, and or mining companies,” says Gregory.

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