• DF Dent does not rely on quick success
• Key to success: wait patiently until the stock picks up
• Popcorn stocks deliver strong returns for DF Dent
The DF Dent Premier Growth Fund relies on so-called popcorn stocks and is quite successful with this strategy: The fund not only beats the market as measured by the S&P 500, but also the Morningstar average for large-cap growth funds.
This is the key to success
The fund’s portfolio includes shares in around 40 companies – the majority of them large caps, only around a tenth are small caps with a market capitalization of less than three billion dollars. When selecting shares, DF Dent does not rely on rapid price increases within a few months, but on stocks with long-term growth potential, portfolio manager Bruce Kennedy, who has been with DF Dent since 2007, explains to CNBC.
One of his former superiors explained the principle to him using an example – popcorn. When preparing popcorn, you can assume that the corn kernel that you throw in the pot will burst within a few seconds or minutes. And probably about 95 percent of all added corn kernels will actually burst. And so it is with the stocks Kennedy and his colleagues select for the fund. “So we’re looking for stocks where you can’t be sure if the stock will be going in the next three or six months or maybe three or four years […]”, but where the portfolio managers see enough clues that could make the stock attractive and a winner stock that it represents a good risk/reward tradeoff,” CNBC echoes Kennedy.
The fund relies on these popcorn stocks
In general, according to Kennedy, one can say that companies with few physical assets, such as financial stocks, are interesting for the DF Dent Premier Growth Fund. However, he and his colleagues don’t specifically focus on stocks in specific sectors due to the potential for a positive outlook for the industry as a whole. Rather, it is about evaluating the individual companies based on their strengths and weaknesses and their potential.
The fund currently has stocks from Visa, S&P Global and Markel, which Kennedy describes as “mini Berkshire Hathaway”, in the basket. But there are usually four to eight each year new shares to it – which of course means that others have to be sorted out again.
The right timing
Timing is important when adding stocks to the fund, adding to a position, removing or reducing a position. That’s why, Kennedy explains, there are no stop-loss targets or anything like that at DF Dent. Such decisions would always have to be made individually and in the light of the circumstances. “We’re not necessarily going to dump the stock the next day because that’s not always for the best, and often many others think the same thing… sometimes it takes a day, sometimes it takes a month, sometimes it takes a year, but it’s up the way out of the portfolio”, Kennedy describes the procedure of DF Dent. Otherwise, in the past, you would often have sold at the wrong time. And the fund naturally wants to get rid of positions as profitably as possible.
This strategy has enabled the DF Dent Premier Growth Fund to generate annual returns of more than 15 percent for more than a decade.
Editorial office finanzen.net
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