The $9.7 billion T. Rowe Price New Horizons Fund hasn't lost a
step since Henry Ellenbogen took the helm from Jack Laporte on
March 1, 2010.
On the contrary. Since then the fund's average annual gain
through Dec. 31 was 19.33%. It topped 99% of its small-cap growth
rivals tracked by Morningstar Inc.
During Laporte's nearly 24-year run, the fund's average annual
gain was 9.60%, topping 84% of its peers.
Before taking charge of his new fund, Ellenbogen ran the
now-$2.3 billion Media & Telecom .
Baltimore-based Ellenbogen, who is about to turn 40, discussed
his investment approach with IBD.
What are you doing differently compared to Laporte?
I ran a global fund that focused on technology, media, telecom. I
gained an appreciation for the pace of technological change and
the importance of understanding entrepreneurs and their
In this fund, we have a bunch of small investments in private
companies. It's well under 3% of the whole fund. But we want to
embrace the best companies pursuing change. Jack occasionally
invested in private companies likeStarbucks (
). But we do it a little more.
Second, you not only want to own the best company that is
pursuing change. But you want to own the company that is best
globally. So I have a slightly greater appreciation for global
leaders than Jack.
About 50% of the fund was Laporte holdovers as of April 16. How
much is new now?
I wouldn't even know. The bottom line is that I've endorsed
whatever we own. Jack left me a good set of cards. My turnover
has come down every six months since taking over. I've embraced
everything in the fund.
How tough has it been to shift to a more diversified universe
from a focus on media and telecom?
There's a learning curve when you do anything new.
I had the same general philosophy at Media & Telecom. I
try to buy small companies that have the ability to compound and
grow into large companies.
The other thing we did that's the same is recognize that the
only thing that's constant is change. So we still spend a lot of
time digging into areas of the economy where there's lots of
change. Those are areas like consumer technology, corporate
technology, financial payments, businesses that prosper because
of the richness of data.
And looking for companies that can be disruptive helps us
You know, small companies involved in change represent about
30% to 35% of our portfolio. The rest is made up of durable,
high-growth companies, niche companies with protected
Tech was your largest sector, at 31% of assets as of Sept. 30.
Industrials were your second largest, at 18%. What types of
leaders do you find in those areas?
There's a significant transition in corporate technology in this
country. A lot of things you saw in consumer Internet trends have
spread to corporate technology. We're seeing the same platform
transition. Corporations want to leverage cloud computing and the
ability to be mobile.
Another thing that's unique is the transition in how people
think their computer screens should look and what the computer
should do, again because of corporate people's experiences as
Big Data is a key driver forCommVault Systems (
). Anything else that makes them unique?
A lot of their competitors put together offerings by acquiring
technology and putting them together. CommVault's platform is
more organic. They've done the parts by themselves. We like that
because it shows their underlying R&D culture.
Trimble Navigation (
) has a quarter of accelerating earnings growth. What's driving
I don't focus on accelerating EPS growth because of the long time
frame I take with companies.
Trimble applies technology to agriculture. As people try to
get more efficient, they leverage information technology. Trimble
is a market leader in that. One area they lead in: They help
agriculture use IT systems to run businesses more
Why should investors likeOpenTable (
), which depends on consumers dining out, at a time of slow
Probably because it was so beaten up in 2011. (The stock still
trades at less than half its April 2011 peak.) In the short-term,
expectations for this stock got ahead of fundamentals. That helps
The company was built in the mid-2000s. It's had to rebuild
its internal IT systems to offer more products and services.
They've done well because of mobility. As smart phones
proliferate, people have the ability to make restaurant
reservations right in their pockets.
That's a powerful trend. This company has some significant
competitive advantages. Its fastest growth may be behind it. But
it has durable growth for the foreseeable future.
) driver the expected synergies from the merger of Catalyst
Health and SXC Health?
This is a stock I inherited from Jack. I've added a lot to
They have been a significant part of the IT backbone of PBMs
(pharmacy benefit managers). They've gained a lot of share by
being disruptive. They have industry oligopoly, offering
flexibility to the mid-size market and now penetrating the large
market because of the scale their merger gave them.
Middleby's (MIDD) appeal appears to be the cost-cutting their
kitchen equipment gives to institutional customers.
This is a very small position for us. But basically they are run
by a good management team that's done a good job of developing
relationships with customers. They've also done a good job of
developing and acquiring hot kitchen products. They make
quick-serve and commercial kitchens more efficient.
Why do you likeIllumina (ILMN), a gene-sequencing equipment
They had a hostile takeover bid from Genentech in 2012. That
shows outside interest. In five to 10 years, genomics will change
the way we live and get health care. So this company is to health
care what IBM was to mainframe computing once. They have helped
bring down the cost of sequencing a person's genes to $1,000 from
$1 billion 12 years ago.
Given the outflow from stocks and stock funds, what's to like
aboutFinancial Engines (FNGN), which provides information to
They're an example of how IT is changing industries. They provide
customization of employees' 401(k) plans. If you work for a
Fortune 500 company, they sell you a customized 401(k), based on
your individualized parameters.
They are the personal wealth managers or registered investment
advisers for 500,000 people, and growing. And as America
continues to move to defined contribution plans from defined
benefit plans, more employees will need that guidance.
Rackspace Hosting (RAX) is a leader in cloud computing. What's
special to you about their approach?
Their competitors have largely been bought. This company
out-executed them and offered better services and products.
That's still 80% of what they do.
Now they also manage your IT assets on an outsource basis. So
they're developing new capabilities that customers need. You've
got to find companies that have the ability to grow, and that's
what Rackspace is.
Is the housing rally the only key toFirst American Financial
A small percentage of the fund, about 10%, is invested in durable
assets that are undervalued because of company- or
Title insurance is a data business, not really insurance. The
loss rates are very low. A 15% loss is a high-loss year.
Now, because of the industry's self-inflicted wounds and the
situation in housing, we felt this company was highly undervalued
and had essential data to allow housing transactions to happen.
That valuation should change.
What's the appeal of a beer maker likeBoston Beer (SAM)?
We like it because craft beers are gaining share. And this
company has a lot invested in its brand, in marketing and in
distribution. They've built a durable franchise, which continues
to expand geographically. We think it can keep growing for the
And they gapped up 15% on Dec. 13 on good numbers and a good 2013
initial guidance. Was anything else going on?
There was high short interest. That had to get covered.