Large-Cap Growth: Our Edge

Jim: William Blair has been quality growth investors now for many decades, but in the large-cap space, we have what we call our structurally advantaged framework.

How do you approach large-cap growth investing?

Jim: So the way we approach large-cap growth investing is it's really a research-intensive approach where we're trying to identify mispricings or inefficiencies in the large-cap growth marketplace. The end result of that is finding companies where the stock price is mispriced relative to its long-term earnings growth power, and the durability of that growth.

Nancy: My primary focus is looking at the outlook or the opportunity for a company over the next three to five years, and identifying the characteristics of the business that we find compelling, both from an industry perspective as well as company specific opportunities. That sets us up for success in terms of identifying companies that are going to have compelling long-term growth opportunities.

Why is your focus on structurally advantaged companies important to the success of the strategy?

Jim: It boils down to the fact that we are giving our analysts a narrow pool to look at in terms of companies that they're analyzing for potential investment ideas for the portfolio.

When you take a step back, we have a universe of well over 800 companies that we could potentially invest in. And through this framework that we have in place, we narrowed that down in terms of companies that have great industry characteristics and strong company specific characteristics.

The advantage of this structurally advantaged framework is our analysts aren't out there chasing shiny objects. It's very focused, very narrow, focusing on the very best companies and the best industries for our portfolio.

Why is sector and market cap neutrality an important element in your risk-management approach?

Jim: Sector and market cap neutrality is an important risk management tool that we use for our portfolio. And the reason why we do this is we believe that lessens the overall volatility of the portfolio and provides a smoother ride for our clients’ portfolio over time.

What do you like about large-cap growth investing?

Jim: There's a couple things. One, at a very high level, just investing overall, it's incredibly intellectually stimulating and rewarding. The second thing is the actual going out and finding a great stock, a diamond in the rough, that when you look back four or five, six years later, has doubled, tripled, or even quadrupled. Incredibly rewarding on an intellectual basis, but also very rewarding for our clients.

Nancy: My favorite part about large-cap growth is that it's a little bit like finding a needle in a haystack. These companies are large, they're well understood by the market, and so the idea is to try to identify the underlying characteristics of the business but try to sort of tease out something unique or underappreciated by the overall market.

As you look forward, which industries may present compelling opportunities?

Nancy: I would say there's a number of consumer trends that I think are relevant not only in the U.S. but globally, the first one being health and wellness. We see dynamics in athletic apparel or sportswear as well as even in beauty and healthcare. We also see opportunities as it relates to travel and other experiences. I think especially post-pandemic, consumers are looking for opportunities to get out of the house and have experiences rather than only spending on durable goods.

Jim: Technology has been an important driver, not only for the portfolio, but society overall. When you think about technology, you think about innovation, the improvement in terms of productivity and efficiency, and the raising of standards of living because of what technology has done over the many decades now. Cloud-based computing is going to play an important role. Generative AI or artificial intelligence is the hot topic these days. We think this is going to play a significant role as we move forward.

What is your edge in large-cap growth investing?

Jim: This might sound trite, but it really comes down to our people. Everyone says people make the difference, but in our case it really does.

David Ricci and I, the other co-manager of this strategy, sat down many years ago and were very thoughtful in terms of how we structured the large-cap growth team. And we decided that it was not going to be a command-and-control structure. We give the analysts the freedom, the flexibility to go out there and find great ideas for the portfolio.

And this fits nicely in terms of the William Blair entrepreneurial culture that has been in place now for 88 years. When you give them the freedom and the flexibility, it creates a sense of ownership, a greater level of accountability, and great camaraderie with the team.

Filmed May 2023

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