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business newsSmall-Cap and Mid-Cap Success Stories
By
Josh Lipton Feb 14, 2011 8:00 am
This five-star fund consistently outperforms. Here they tell Minyanville some of their top stock picks.
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The co-managers of Janus Triton (JATTX) have to agree on a stock before it can make its way into their portfolio. But, having worked side-by-side for so long, the investment pros find that they’re usually in agreement about what constitutes a smart place to commit capital.
“We grew up in this business together,” says Schaub. “We were the first two members of the small-cap team here that today numbers eight people in total. So our process and philosophy are nearly identical. We actually have surprisingly few debates.”
The two portfolio managers, who have co-captained the fund since July 2006, invest in the stocks of small- and medium-sized companies that they believe to have solid growth potential. Generally, these companies have a market capitalization of less than $10 billion.
The management team has consistently outperformed: Through February 10, Triton’s three-year annualized return of 10.84% easily bests its benchmark: the Russell 2500 Growth Index, and leads its Morningstar rivals by 4.42 percentage points, landing in the top 9% of its Morningstar category.
Morningstar awards the fund five stars, its highest rating.
JATTX, with $1.5 billion in assets, has an expense ratio of 0.96%. The fund requires a minimum investment of $2,500.
Recently, we checked in with Meade and Schaub at their office in Denver to discuss their investment process and some of their top stock picks. For more, please read on.
Minyanville: Please explain your investment process for us.
Brian Schaub: A lot of our philosophy and process stems from the fact that we entered this business in 2000, when the tech bubble was bursting. We learned a lot of from that experience, specifically the importance of investing in companies that have sustainable competitive advantages, large addressable markets, high quality business models and attractive valuations.
In addition, we learned a lot about the importance of managing risk. We do not want to lose investors’ money as the market goes down.
Minyanville: You also limit new investments to no more than 3% of the total portfolio. How come?
Schaub: When you think about small-cap and mid-cap, it’s naturally a volatile asset class. The last thing we want is for one stock position to negatively impact total portfolio performance. So, to control that, we run a more flat portfolio compared with many of our peers.
Minyanville: Both of you have more than $1 million of your own money invested alongside fund shareholders. Why is that important?
Schaub: Yes, the vast majority of my personal assets are invested in Triton. I think that keeps you, as a manager, grounded. It keeps you disciplined to your process and philosophy. You know that the decisions you’re making are in fact impacting your own personal investments. You are closely aligned to the fund shareholders, who have entrusted you with running their money.
Minyanville: Let’s do some stock picking. Why is VistaPrint (VPRT) a buy?
Schaub: The company provides marketing materials to small- and micro-businesses, meaning business cards, brochures, and envelopes. They take in about 70,000 orders per day, all over the Internet. I estimate they can manufacture materials at 90% lower costs than the competition, which are mostly these mom-and-pop print shops. That means they can offer tremendous value proposition to customers: 50% lower prices with gross margins in the high 60% range.
Minyanville: How did the company hold up during the downturn?
Schaub: It’s one of the things that impressed us. If you look back through the downturn, in 2008 and early 2009, they were still able to grow revenues in excess of 30% organically. To us, that’s a sign that they are doing something very special, that they’re early in their growth curve and that runway for growth is very long.
Minyanville: You’re also a fan of SBA Communications (SBAC), which is a leading independent owner and operator of wireless communications towers.
Schaub: They compete with Crown Castle (CCI) and American Tower (AMT), which are larger-cap companies. SBA is unique because they own the towers that the wireless carriers use to hang all their equipment on, which then provide cellular services to you and me.
They get paid a lease by the carrier that is typically five to 10 years in duration. The end result is that they have excellent top line visibility. I estimate that they go into a year already having 95% of the business booked. Now think about what that allows management to do: it means they can reinvest in the business and think strategically about how to create value.
We think it is one of the best business models out there: high incremental margins, great visibility, good growth prospects and, importantly, low downside risk.
No positions in stocks mentioned.
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Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
