SWS Quarterly Research - July 2021 Update

Posted by Mike Parker, CFA and Kurt Grove, CFA on 7/22/21 4:00 PM

The following is an excerpt from our recently published SWS Growth Equity 2Q2021 strategy update, which is available in its entirety via pdf or audio stream. In the full piece, we provide our take on sifting through an increasingly volatile equity market backdrop, while assessing the strategic merits of our internally managed strategy for public growth-style equity.

In this latest installment of our quarterly accountability check-in, we assess an important milestone that gets to the core justification for launching SWS Growth Equity. Having honed an investment process inside a $100 billion dollar pension, we identified the opportunity to combine stock-picking acumen with risk-minded portfolio construction, then unveiling this to a much wider audience. This past May marked three years since we planted our flag with investment capital, including our own alongside external investors. We dive into the output of our efforts below, but our focus will always be on a universal goal of every public equity investor. Despite various ways it’s articulated, consistent risk-adjusted returns are at the core of every investor’s pursuit.

Different Investors, Similar Objectives

Since branching out from the pension, we’ve gained an increased appreciation for the spectrum of investor aspirations within public equities. Two investors could end up owning the exact same portfolio, but the objective of their respective allocations could be dramatically different. The pension investor hopes to achieve a return in excess of their lability stream’s discount rate; the university endowment has a spending rate plus an inflation premium target to surpass with their portfolio returns; the individual may look to maximize compounding returns for a retirement nest egg. However, the pursuit of risk-adjusted returns, specifically those in excess of the benchmark, satisfies each objective. We also hold the achievement of this as a core tenet to SWS Growth Equity.

Non-Linearity of Alpha

Quick side note on excess returns, aka alpha: it’s rarely delivered linearly in long-only equity. Last year is a prime example. Given the dramatic impact the pandemic has had across the entire global economy, many trends poised to unfold over the next 5-10 years were crammed into a very short window. Corporate management teams saw the opportunity to greenlight what would have taken years of investment and board cajoling to pivot their businesses towards digitally-enabled fulfillment, factory modernization, and cloud-native architectures. It also has had dramatic impacts across our entire labor force and will continue to do so.

Technology Investing is Not Limited to Technology Stocks

These accelerations also were not confined to companies in the technology sector nor to stocks trading under technology tickers. Take UnitedHealth Group [UNH] for example, a $390 billion healthcare services provider serving 50 million lives across commercial, Medicare, Medicaid, and advantage/supplement extensions. One of its top initiatives that’s responsible for the next era of growth for its entire enterprise: maximizing the utility of technology...


Download our entire portfolio update here:
PDF version | Audio Stream

Topics: Investing in the Future, Current Events, Asset Management, Growth Equity Commentary

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