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Mar 29, 2019

Company News | A Grand Master's Secret to 10 Years of 20% Stock Returns

By Mark Kolakowski Updated Mar 29, 2019

As increasing numbers of active investment managers fail to meet their benchmarks even over relatively short time spans, the rare one with a lengthy track record of beating the averages demands attention. Samantha Lau, co-manager of the AllianceBernstein Small Cap Growth Portfolio (QUASX), fits the bill, having delivered average annual total returns of nearly 20% over the past decade.
She's also co-chief investment officer (CIO) of small and SMID cap growth equities at AllianceBernstein, and offers several key words of advice to investors, as summarized below.
A Top Stock Picker's Top Rules for Investors
  • "Never sell half of your position."
  • "If you think something is wrong, exit and revisit."
  • It's never too late to sell a loser.
  • "CFOs don't quit to spend more time with family."
  • When CFOs quit, the company's prospects often are diminishing.
  • "A good company is not always a good stock."
Source: Samantha Lau of AllianceBernstein, as reported by Barron's.

Significance For Investors

Lau has been one of the four co-managers of the AB Small Cap Growth Portfolio since Dec. 31, 2004. Over the past 10 years, it has delivered an average annual total return of 18.85%, beating the average for the small cap growth category by 2.94% per year, and its benchmark, the Russell 2000 Growth Total Return Index, by 2.70% per year, according to Morningstar Inc., based on data through March 27, 2019.
This performance has placed the fund in the top 5% among 385 funds in its category with 10-year track records. It also is in the top 9% over the past 15 years.
By contrast, a growing majority of actively-managed funds are underperforming the indexes and passively-managed funds. Among 4,600 actively-managed funds across various asset classes, only 24% beat their passive rivals across the last 10 years, per other research by Morningstar.
Top Holdings: AB Small Cap Growth Portfolio
(% of Assets)
  • Etsy Inc. (ETSY), 2.1%
  • iShares Russell 2000 Growth ETF (IWO), 1.9%
  • Five Below Inc. (FIVE), 1.8%
  • Planet Fitness Inc. (PLNT), 1.7%
  • Trade Desk Inc. (TTD), 1.7%
Source: Barron's
Lau and her colleagues look to identify small companies that will grow faster than the market expects, based on a process that the fund has used for 25 years. Starting with the 1,200 stocks in the Russell 2000 Growth Index, they cut the list in half based on liquidity, growth, and quality criteria. They then divide these stocks by sector, with Lau focusing on technology companies.
The managers subjectively assess the outlooks over the next 12 to 18 months for the stocks that they review. Meanwhile, they also run a model that scores all 600 stocks on fundamental factors such as earnings and revenue revisions, in addition to price and earnings momentum, updated weekly.
Ultimately, the process narrows the field to 200 stocks that they will consider buying or continuing to hold. The fund currently holds 98 stocks, per Morningstar, many of which have been in the portfolio for years, Barron's notes.

Looking Ahead

While Lau's fund uses a rigorous multi-step process to make investment decisions, she believes that the case for each stock ultimately should be clear and succinct. "I don't like to dawdle. As I say to my team, 'If you can't explain in five minutes why we should keep a holding, we need to move on,'" she told Barron's.

Source: Investopedia

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