Talk about a rebound. The $2.6 billion Columbia Large Cap
Growth Fund slogged through a tough 2011. Its 3.03% loss lagged
59% of its peers tracked by Morningstar Inc.
So far this year, the fund was up 18.87%, going into
Wednesday. That topped 95% of its direct rivals.
What made the difference? Doubling down on high-quality
companies, say the fund's managers.
Over the past three years Large Cap Growth's average annual
return is 14.23%, ranking in the top 24% of its category, whose
average is 12.68%. The S&P 500 averaged 13.72%.
Lead manager John Wilson, 49 years old, and manager Peter
Deininger, 41, talked shop with IBD from their offices in
Why has your performance improved so much this year?
We increased our bias for quality names, coming into this year.
We added some weight to our highest conviction names. In some
cases, they had lagging earnings and/or revenues growth in the
second half of 2011. And we reduced some of the lower end of our
large-cap spectrum names. We pruned some midcap names where our
investment thesis was not as crisp.
And we have not ignored the market's interest in dividend
yield as an exponent of total return. When we think about a
market operating in uncertain times, to the extent you can find
high-quality names with a nice income component, that bolsters
your overall return case.
Would you add to that, Peter?
Another thing that's different this year is that, especially in
the latter part of 2011, there's been a different efficacy in a
strategy like ours that's more focused on stock selection. That
plays into keeping our sector weights within a tight band vs. our
benchmark (Russell 1000 Growth index). And we try to keep a
majority of our risk budget emphasized toward individual stock
Last year, especially late in the year, you had some broader
factors driving overall performance. You had a market
characterized by high correlations. This year there is lower
correlation, which makes stock selection more important. That's
Yet one of your risk controls is to limit bets on individual
We run a diversified portfolio. We have 70 to 90 names. We're not
overly reliant on any one name. We limit our sector bets to
within 3 percentage points plus or minus of our index's
What's your take onWatson Pharmaceuticals (
)? You've built your stake for two straight disclosure
They launched a significant acquisition (earlier this year) of
Actavis. Together, that will create the third-largest global
generic pharmaceuticals company in the world. It will allow them
to operate more on a global scale, have access to new markets
like Russia and Eastern Europe.
Health care cost containment is a powerful theme around the
world, not just in the U.S. Watson benefits. And the merger
provides significant accretion in earnings for the next several
years. We expect their earnings growth to be in excess of 15%
annually for the next couple of years.
Pharmacy benefits managerExpress Scripts (
) is another cost containment play, right?
Right. Their merger with Medco Health Solutions will allow
additional synergies and allow relatively powerful economies in
purchasing and dispensing of drugs. It's a cost containment
scenario, regardless of macro economics or who ends up in the
Biogen Idec's (
) quarterly earnings per share rebounded, growing 34% after
falling by 2% the prior quarter. What's your view?
It's a local company here for us in Boston. After a period of
maturity the past several years, they're entering a new phase of
growth. That's led by their new oral drug (BG-12) for multiple
sclerosis. It is likely to be approved this year. It will be a
powerful engine of growth. Patient compliance with oral drugs is
much stronger than with injectables.
You got back intoEdwards Lifesciences (
) two disclosure periods ago, after having exited this stock.
What's your thesis?
This is a health care company with a revolutionary product to
treat heart valve replacements. The typical heart valve
replacement is invasive and expensive. Edwards has come up with a
product and delivery system (via a catheter inserted in a
patient's thigh) to avoid cracking open a patient's chest.
This is a tremendous advance, especially for older patients
where this product is approved. Some of these patients could not
withstand an invasive open-chest procedure. This will materially
expand the market, both in the U.S. and Europe.
What's your view onRegeneron Pharmaceutical (
), which was profitable from product sales for the first time in
Q1? You opened a position two disclosures ago.
It's a rapidly growing biotech company. Their lead product is
Eylea, which is used to treat macular degeneration. That's a
serious condition, which increases with age. And the aging U.S.
and international population is growing.
Eylea met strong consumer acceptance. Revenue and earnings
growth in 2012 has been faster than initially expected. We have a
lot of conviction in this product.
Apple (AAPL) has had a great run, of course. Why should any
shareholder expect that run to continue?
In the near term, with several major product cycles in front of
them, the case can be made for momentum in the company's
Another thing that plays to their advantage is their products
are not just shiny new toys that come and go. They've created an
ecosystem that keeps the customer coming back for incremental
products instead of drifting to a glitzier phone or product from
But going forward, there are few high volume markets left for
them. Finding or making new high volume markets will be their
What is drivingGoogle's (GOOG) run this quarter?
Google still has the dominant position in search. They're doing
better at monetizing things like YouTube, which is heavily
trafficked. But the company has not yet delivered a lot of
revenue and earnings growth from that product. Still, we think it
is coming down the road. Its valuation is in line with the market
from a P/E (ratio) standpoint.
Peter, tech is your bailiwick. What would you add, please?
One thing that helps is that Google has a strategy for monetizing
the shift to more mobile Internet usage. There has been growing
skepticism about some social media Internet companies' transition
to mobile use. But Google has shown a steep trajectory of ability
to monetize them.
What's driving eBay (EBAY), which is also on a run?
This story has been in transformation. EBay had gotten stale and
suffered from a loss of innovation. Management embarked on a
series of changes, which resulted in improved traffic and
Second -- and a powerful point more responsible for the
stock's performance -- is the evolution of PayPal. The payment
ecosystem started in eBay. It has spread broadly online. And it's
being tested in a couple of real world offline opportunities.
That growth, plus the core eBay operation, led to the stock
performance. We think it will continue to deliver solid
Teradata (TDC) has four straight quarters of earnings-per-share
growth in the mid- to high 20 percentages. What's your play?
This is one of the few pure plays that addresses an increasingly
important area of spending in technology, and that is data
They have a number of systems, ranging from appliances to very
high-powered systems that serve as repositories and analysis
tools for companies' data. There is data growth at companies from
traditional parts of their businesses as well as an increasing
amount from Internet interactions. So there's growing need to
manage that and analyze it.
Companies talk about Big Data, which is this explosive amount
of information that is coming into companies. Teradata has some
of the best technology for dealing with that. They are growing
Why did you double your stake inAvago Technologies (AVGO) in your
Avago is a semiconductor company that is part of the supply chain
that is enabling the radio frequency technology within the
handset market. It is a growing portion of this business. And
they have been levered to higher-end smartphones.
As you develop phones that operate as world phones in greater
geographies and take advantage of new network technologies and
still handle legacy networks, there is a growing need for the
radio frequency products that Avago produces.
How do you seeAlliance Data (ADS), whose earnings-per-share
growth has accelerated for two quarters?
It's comprised of three portions. One is private label credit
cards. That's been a growing business. They've gained share and
acquired an attractive portfolio of retailers. That produces a
tailwind of growth.
The second part is called Epsilon. It does a lot of marketing
The third part is built around loyalty programs. It's
traditionally based in Canada, but is expanding into Brazil, a
large new market for them.
All of these segments working together now is a dynamic we
have not seen for a number of years. The nature of their business
gives them visibility. So the three pillars give them a pipeline
of business, giving them earnings growth. We expect that to
Is TJX Cos. (TJX) a play on sluggish U.S. GDP growth?
You hit it. TJ Maxx appeals to value-conscious shoppers. It has
executed well. Given slow wage growth and high unemployment,
value rings through to a lot of consumers. Comp store sales and
their overall top line have done well the past couple of years.
We expect them to sustain that.
Why did you begin a stake inDiscovery (DISC) two disclosures
It's a well run cable network, with global operations, executing
well for several years. Their programming is relatively
economical to produce. They don't have to do a lot to convert
programs from U.S. viewing format to international , so their
marketing is strong. Most people see cable as a good
entertainment value. So within the world of consumer
discretionary, cable TV represents pretty stable revenue and cash
Which brings us toComcast (CMCSA). Why did you build your stake
in your latest disclosure?
Comcast is the leading cable programming provider. It has
executed well in the last several years.
They are gaining share from some satellite and telephone
companies. They've done a nice job of laying on additional
products. And their high-speed Internet business performs quite
The company is pretty resilient to changes in macro economic
So their profile is one of consistent growth, with little
potential for economic disruption.
And they are trying to introduce products and services that
reduce your dependence on being in your living room to watch
Is Anheuser-Busch InBev a play on big international beer makers'
growth in emerging markets?
That's pretty much exactly it. This is a leadership name. It is a
dominant beer franchise around the world. The company has been
put together by a series of mergers in the last 10 years. They
benefit from consolidation and geography and steady end