Fragasso Financial Advisors is fortunate to have access to many of the top investment professionals providing a level of analysis not typically found with all investment firms. Recently, we interviewed 23 year veteran Portfolio Manager Will Danoff responsible for over $75 billion in large growth company stock assets within two strategies. Both have similar strategies and strong returns, but we were specifically analyzing the more flexible smaller strategy and the competitive advantage it has over other large growth manager peers. Some of the ideas not able to be purchased in the larger fund can be purchased in the smaller strategy.
Research begins and ends with performance and the quantitative factors that coincide with it. While the reasons for selecting or not selecting an investment are evident from readily available performance information, qualitative analysis involves some subjective reasoning and additional analysis beyond that found within reports. Often, the pinnacle of our research involves an interview of the key personal and team members of the strategy. Fragasso Financial Advisors is fortunate enough to have access to many of the top investment professionals providing a level of analysis not typically found with all Investment Advisory Firms.
We were immediately able to discern the process Will Danoff takes; and it can be summed up in one word, “curious”. The strategy begins with identifying companies with strong earnings from a variety of business situations, such as cost-cutting initiatives, increasing market share, new products, or turnaround stories. Their investment philosophy, “stock prices follow earnings and companies that are growing tend to outperform”. To substantiate their thesis, Mr. Danoff and the extended staff meet with roughly 150 companies a year to uncover the drivers of their growth and how that translates to improving fundamentals. It is well-known within investment circles, that Mr. Danoff and his staff are conditioned to ask the most difficult questions of executives and industry insiders.
To take it one step further, many management meetings are intended to gain an inside perspective on other companies not present. By meeting with companies and industry professionals that represent competitors, suppliers, and regional country situations, it helps identify opportunities. Casting a wide net allows Mr. Danoff the ability to learn something from every meeting. Those diverse meetings reflect his stock selection style as well. A portion of the portfolio resides in smaller and midsize companies with the potential to be large ones in the near future. In addition, it also permits the manager to still be nimble despite the asset size.
Contrarian stock selection is not out of the question either. After riding the technology wave in the 1990’s, Mr. Danoff reduced the exposure drastically when valuations became rich, and avoided much of the sell-off that occurred. By his own evidence, when he could no longer find a seat at the technology companies meetings, and other companies in less glamorous industries were underfollowed but growing considerably, he felt there was a changing tide in the valuations not yet recognized.
With this type of approach, only a curious fund manager and a deep research team would insist to meet with this many companies. Replication of the process is difficult at best for most, offering a level of explanation behind their strong results. The brief analysis above begins to explain their approach and what is viewed as a competitive advantage we feel can continue moving forward to the benefit of shareholders and ultimately our respective clients. Our questioning provides us the reassurance that the past performance is not from randomness.
From our analysis and questioning, we feel confident that Will Danoff provides the opportunity for strong performance. For once, the curious portfolio manager was the subject of the interview.
Daniel Dingus is Managing Director and Chief Portfolio Strategist at Fragasso Financial Advisors, a Pittsburgh-based investment and financial planning firm. Due to industry regulations, comments are not permitted on this blog. If you would like to contact the author, please email us at blog@fragassoadvisors.com. Dan can also be reached for comment at 412-227-3200.
Past performance is no guarantee of future results. No strategy assures success or protects against loss. Investing in mutual funds involves risk including possible loss of principal. The prices of small cap stocks are generally more volatile than large cap stocks.