Insights from SWS Partners

The following is an excerpt from our SWS Growth Equity quarterly update, our internally-managed strategy based upon an institutionally-designed investment process.

Evidence shows that exposure to the digital enablers is an increasingly critical investment consideration. What was previously a future-proofing exercise has now become a critical pandemic navigation tool. We started to assemble data behind this thesis as they unfolded closer to the eye of the storm back in March/April/May, but the first June-quarter cohorts are echoing the same sentiment: many demand shifts are structural rather than cyclical.

Thank you. Two words that have come to mean a lot in this time of heightened economic stress. As business owners of a firm that works with uniquely successful clients, we have had a front-row seat for the impact of the recent economic shutdown initiated in response to the coronavirus. We feel lucky to be able to help our clients weather this storm. In business, as in life, there are times when it pays to continue to march ahead regardless of the headwinds. So, I’m happy to announce that SWS Partners has been able to add to our arsenal of expertise by bringing on new talent.

Solution visibility can be tough when we’re pummeled with daily reminders of downside risk. However, it’s entirely possible to sketch a blueprint of our bridge back to normalcy, or some semblance of it. That task is much more doable in May than it was in just April or March. The interconnecting trusswork to this design is unparalleled global scientific collaboration, and the tools being used to construct it include near-endless pools of compute power, cheap genome sequencing costs, widened communication pipelines among research institutions, and access to stockpiles of intellectual property previously held captive in the vaults of big pharma. As an NYT article succinctly stated, “While political leaders have locked their borders, scientists have been shattering theirs, creating a global collaboration unlike any in history. Never before, researchers say, have so many experts in so many countries focused simultaneously on a single topic and with such urgency. Nearly all other research has ground to a halt.”

Our institutional approach to asset management affords invaluable insights to the granularities of how businesses deploy capital. This in turn informs our conclusions on issuers better poised for disproportionate value creation, which is the crux to alpha generation in our actively managed strategies. This exercise becomes even more imperative during times when macro clouds impair ground visibility. In today’s case, the global scramble for pandemic mitigation can obfuscate how troops on the ground are reassembling to capture massive demand shifts underway. Without careful study of these bottom-up efforts, critical components to our eventual economic recovery would be overlooked, leading to avoidance of upside participation for investors.

As part of our customary quarterly review process to the SWS Growth Equity strategy, which we benchmark against the Russell 1000 Growth Index, we delve into the fundamental justifications of our portfolio’s top contributors and detractors. The following two stocks are samples of the best and worst performers during 1Q2020, extracted from our strategy’s full quarterly review, available for download here.