Interestingly, while small and mid-cap stocks clearly underperformed large company stocks in the general market this past year, for our growth portfolios, the best performing stocks came from the ranks of mid-cap, small-cap and even micro-cap companies. Israeli-based Novocure, Ltd., a developer of cancer treatments which use electric “fields tuned to specific frequencies” to disrupt solid tumor cell division, grew 151% and is now over $8B in market value. Phoenix-based Carvana, Inc., an online used car retailer, was up over 181% and the lone large-cap company in the mix Canada-based Shopify, Inc., a software platform that allows online businesses of all sizes to run their entire business online, was up 187%. Micro-cap biotech company Compugen, Ltd., also Israeli-based, was up over 174% and optical component manufacturer Inphi Corporation, based in Sunnyvale, CA., was up over 130% to round out the best performers.
This result was that our Core Growth Strategy outperformed the general market averages again in 2019.
These top performers are a good indication that our portfolios were favorably impacted by a very broad mix of companies representing a diverse set of industries, so there was no one “sector” that could be identified as the reason for positive influence on the portfolio. Company-specific dynamics were the driver for each of the best performers.
The same is true of those that were the biggest detractors in the portfolio. QuickLogic Corporation (-41%), provider of analog and mixed-signal semiconductors for communications and data center markets, Green Dot Corporation (-71%), a consumer-oriented financial technology company, and Vuzix Corporation (-58%), a maker of augmented reality smart glasses, each are clearly representative of differing groups. In all those cases, while the near-term performance has been disappointing, we believe there remains significant potential in the future.
Looking forward, most of our exposure in the portfolio is in the information technology and healthcare-related sectors. What is most important to understand, however, is that in those areas, the portfolio is represented by significant diversity amongst industries, many of which have sensitivities that vary greatly from each other. Thus, it can be misleading to look at the overall portfolio weighting of over 50% in “information technology” (IT) and assume that it is heavily concentrated. For example, in that broad “information technology” group we find such differing industries represented as cybersecurity software maker CyberArk, Ltd. and analog semiconductor foundry (also known as a “fab” or “fabrication plant”) Tower Semiconductor, Ltd.; subscription software platform company Zuora, Inc. and Airgain, Inc., a designer of embedded antenna technologies for the wireless industries.
In healthcare (with roughly 25% representation), veterinary products manufacturer IDEXX Laboratories, Inc. differs greatly from Apyx Medical Corporation, maker of electrosurgical devices used in cosmetic procedures, or Vapotherm, Inc., a maker of devices used to non-invasively treat patients who are suffering from respiratory distress.
These are some examples of companies that fit well into our narratives that are built around three schemas: demographics, technology and business processes. Descriptions of the companies mentioned above give an idea of some of the narratives relating to healthcare and technology. Others, such as the rise of the subscription economy, relate to business processes and how business is conducted; or to the significant impact that biotechnology is having on the treatment of disease. We also invest in companies that are not necessarily inventing these new treatments, but instead companies which support the proliferation of such technologies. A great example is Cryoport, Inc., which provides cryogenic transportation of drugs both in the development phase and also during commercialization.
Each of these narratives, as well as many others, are represented in some form in our portfolio. With economic tailwinds at this point, we expect the companies in our portfolio to either continue on the positive track they’ve been on, or to achieve breakthroughs in their efforts at attaining the expectations we have for them. It is entirely possible that some of the smallest companies in our portfolio will be where the largest returns come from in the next year or two as some long-awaited business prospects come to fruition in specific companies. This could well result in a circumstance where the returns in our portfolio significantly diverge from those of the broader market which is so heavily dominated by the “mega-cap” stock such as Google, Amazon, Apple and Facebook. Stay tuned.
The same is true of those that were the biggest detractors in the portfolio. QuickLogic Corporation (-41%), provider of analog and mixed-signal semiconductors for communications and data center markets, Green Dot Corporation (-71%), a consumer-oriented financial technology company, and Vuzix Corporation (-58%), a maker of augmented reality smart glasses, each are clearly representative of differing groups. In all those cases, while the near-term performance has been disappointing, we believe there remains significant potential in the future.
Looking forward, most of our exposure in the portfolio is in the information technology and healthcare-related sectors. What is most important to understand, however, is that in those areas, the portfolio is represented by significant diversity amongst industries, many of which have sensitivities that vary greatly from each other. Thus, it can be misleading to look at the overall portfolio weighting of over 50% in “information technology” (IT) and assume that it is heavily concentrated. For example, in that broad “information technology” group we find such differing industries represented as cybersecurity software maker CyberArk, Ltd. and analog semiconductor foundry (also known as a “fab” or “fabrication plant”) Tower Semiconductor, Ltd.; subscription software platform company Zuora, Inc. and Airgain, Inc., a designer of embedded antenna technologies for the wireless industries.
In healthcare (with roughly 25% representation), veterinary products manufacturer IDEXX Laboratories, Inc. differs greatly from Apyx Medical Corporation, maker of electrosurgical devices used in cosmetic procedures, or Vapotherm, Inc., a maker of devices used to non-invasively treat patients who are suffering from respiratory distress.
These are some examples of companies that fit well into our narratives that are built around three schemas: demographics, technology and business processes. Descriptions of the companies mentioned above give an idea of some of the narratives relating to healthcare and technology. Others, such as the rise of the subscription economy, relate to business processes and how business is conducted; or to the significant impact that biotechnology is having on the treatment of disease. We also invest in companies that are not necessarily inventing these new treatments, but instead companies which support the proliferation of such technologies. A great example is Cryoport, Inc., which provides cryogenic transportation of drugs both in the development phase and also during commercialization.
Each of these narratives, as well as many others, are represented in some form in our portfolio. With economic tailwinds at this point, we expect the companies in our portfolio to either continue on the positive track they’ve been on, or to achieve breakthroughs in their efforts at attaining the expectations we have for them. It is entirely possible that some of the smallest companies in our portfolio will be where the largest returns come from in the next year or two as some long-awaited business prospects come to fruition in specific companies. This could well result in a circumstance where the returns in our portfolio significantly diverge from those of the broader market which is so heavily dominated by the “mega-cap” stock such as Google, Amazon, Apple and Facebook. Stay tuned.
Disclosures: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Taylor Frigon Capital Management LLC (“Taylor Frigon”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Taylor Frigon. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Taylor Frigon is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Taylor Frigon’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a Taylor Frigon client, please remember to contact Taylor Frigon, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.
