Thomas Marsico is one of the fund industry's marquee
He ran Janus Twenty Fund from March 1988 through July 1997. In
that time the fund's average annual gain of 22.59% outpaced 97%
of its large-cap growth peers, according to Morningstar Inc. The
S&P 500 averaged 17.88%.
Now he is chairman and CEO of Marsico Capital, where he runs
or co-runs 20 funds for his firm and as a subadviser.
The $1.8 billion Columbia Marsico Focused Equities Fund , with
31 holdings as of Aug. 31, reflects the concentrated portfolio
style for which Marsico is well-known. Coralie Witter, 41 years
old, is co-manager.
Marsico, 57, talked shop from his office in Denver.
Why do you like a concentrated portfolio?
We have a variety of companies, representing a lot of industries.
This gives us a lot of best-of-breed companies.
When you say best-of-breed, what do you mean?
We like companies that have strong market position, that are not
dependent on capital markets to fund growth, that generate lots
of free cash and have opportunities to invest it back in
themselves. And when they don't, we like to see steady growth of
dividends and share repurchases.
How are you allocating between the U.S. and the rest of the world
Throughout my history of managing money for about 30 plus years,
I've always owned what I thought were dominant franchises
wherever they are in the world. You'll see a number of
international names in the portfolio. There'sBaidu (
), obviously the dominant search company in China.Accenture (
) (headquartered in Ireland) is another dominant firm in data
services and consulting.Anheuser-Busch InBev (
) (based in Belgium) is basically a big consolidation in
So about 6% of the portfolio was in companies deemed to be
international as of Aug. 31 (and the same weighting now), but
companies like Accenture and InBev get a lot of their revenue in
With 23% of your assets, consumer cyclicals are your largest
sector as of July 31. But your health care weighting has soared
over the past four quarters. Why is that?
With the passage of health care laws in the U.S., we've started
to increase our position in health care companies. That's a
change over the last few years when we didn't know what the rules
and regulations would be and what the new health care paradigm
As a result of the Supreme Court judging ObamaCare
constitutional and that the fee (imposed on individuals who don't
buy coverage) is more of a tax, the day after that ruling there
was an acquisition byBristol Myers Squibb (
) (ofAmylin Pharmaceuticals (AMLN). The following Monday an HMO
) bought a different one (Amerigroup (AGP). So health care
providers were waiting for that decision, ready to make
We own some health care companies coming up with new
treatments for unmet medical needs. We've taken that weighting up
this year. It acted as a pretty defensive group through the rally
we saw this summer. Now we're seeing strength in that group,
given the backdrop of a very difficult economic environment. So
health care companies should be defensive, but now should also
provide moderate growth plus pretty good dividend yield plus
We think share repurchase is important because there seems to
be some unwillingness (by investors) to put money into stocks.
We've seen more money go into bond funds and surrogates even with
their low interest rates.
You've gotBiogen Idec (BIIB) as well. I gather their new drug for
the treatment of multiple sclerosis looks promising.
They have a tremendous franchise in rheumatoid arthritis. And
they're developing BG-12 for multiple sclerosis. It is taken
orally, whereas their other drug for this is taken by infusion --
a patient must go to a facility. The BG-12 treatment profile is
better, so the outcome profile is better.
You opened your current position inExpress Scripts (ESRX) in
April. What's your thesis?
With the acquisition of Medco, they are the dominant player in
the pharmacy benefit management industry. Now they are at a size
and scale to get significant cost savings. Also, they should see
new opportunities of moving into specialty pharma, biologics,
that generate a lot of cash flow. And they are growing their
share repurchase program.
You began your current stake inHome Depot (HD) last December and
have built it. Do you like housing?
Housing is another area we like. If you look at homebuilders,
it's not an industry where there is great franchise value.
So we've had a large position in Home Depot, which has been
successful for us. They went through changes in leadership.
Current leadership is strong at operating the business at a very
high level. We think they are better positioned thanLowe's (LOW)
for the do-it-yourself customer. They think only a small portion
of their business, 15% to 20%, is related to new-home
How are they impacted by rising existing home prices?
We've seen data in the last couple of weeks that the median price
for existing homes is moving up. So people are seeing some equity
returning to the value of their home. So at the margin people are
likely to invest in their homes again. They will build a new bath
or remodel a kitchen. And that helps Home Depot.
Is the housing situation why you've been generally building
stakes in recent quarters in big banks likeWells Fargo (WFC)
andU.S. Bancorp (USB)?
At some point, rising home prices also translate into banking,
where we have positions in Wells Fargo and U.S. Bancorp, two of
the largest mortgage origination companies.
Wells Fargo is currently originating loans on close to 30% of
There's been tremendous consolidation in the mortgage industry
as a result of the collapse in 2006 through 2008.
The fund is sector agnostic -- it can have whatever sector
weightings it wants. And technology is your second-largest
weighting, with 22% of assets. Why not a larger weighting in a
sector that many managers see as a mother lode of innovation?
We in general are lightly weighted in tech. Few companies have
proprietary exclusive type products that are difficult to
duplicate. The lifecycle of a product can be as long as a couple
of years but as short as maybe three months.
So it's an area we haven't aggressively invested in. We do
like companies using technology to improve either their
information about customers or their ability to produce or their
logistics. Companies we've invested in are well aware of where
their customers are spending money.
You've gotApple (AAPL). Why do you think it still has legs?
It's our largest position. We've owned it a long time. Our cost
basis is 125. (Now it's trading in the mid-600s.) It's a position
that at different times we've cut back. We think the leadership
under Tim Cook is very strong. Their pipeline of new innovative
ideas is strong. They have executed at a very high level. Also,
they've implemented a basically 1.5% dividend and now a
significant share repurchase. We expect them to grow their
dividend and the amount of stock repurchase.
What other holdings use technology in ways you like?
We ownEquinix (EQIX). It is a data center company. It will
convert to REIT status in early 2015 (to take advantage of tax
benefits). The considerable moat they have is the locations of
their data centers. They are at the nexus of where telephone
trunks come together as well as cable systems, generally at the
intersection of where the most digital traffic is.
The use of digital data continues to grow. Now voice is being
converted to data. Over radio, voice is being converted to data
so these are all new IP packets, especially when you go to an LTE
network, which are being switched to with all the new smartphone
So in Equinix's business, you must colocate your services
close to the on-ramps for the Internet and to these telephone
networks, and that's where Equinix has located their data
IsMonsanto (MON) another creative user of technology?
Monsanto has proprietary positions finding hybrids and finding
technology to improve yields for farmers.
Their next product is a drought-tolerant corn. With severe
drought in the U.S., demand will be high. Even in normal
conditions, this product will extend (corn) farming into high
plains arid areas like Colorado, where there's a lot of land but
not a lot of water.
They've expanded their business in Brazil and Argentina. As
their GMO (genetically modified organism) products become more
accepted in Europe, farmers there are using it more. And it's
being used more in Eastern Europe.
Priceline (PCLN) is also an innovative tech user rather than tech
creator, right? But you've been trimming.
Before they announced their quarter, we cut the position in half.
We were concerned about travel activity in Europe.
But actually the stock has performed well after the adjustment
downward, reflecting new estimates for the quarter. So this is
not a company we want to be completely out of it.
Our cost basis is low, around 200. The stock is trading around
Priceline lets small hotels add exposure on the Internet. This
gives Priceline more destinations than other travel services.
They dominate Europe. They are in the process of dominating Asia
with their Agoda service.
Europe could fall into recession, although things should not
get significantly worse. But the savings a traveler can get by
booking through Priceline is significant. Priceline's comps vs.
last year will get easier.
Chipotle Mexican Grill's (CMG) earnings-per-share growth has
accelerated for two quarters. How much growth is in front of
You can watch your meal prepared in front of your own eyes. It's
an easy model to execute. But their focus on natural products
makes them unique.
They have a tremendous opportunity to expand their number of
stores. Their penetration on the East Coast is low. And they have
the ability to take the company international. They're just
starting to take advantage of that with a couple of stores in the
And they're introducing a second concept: Thai food. The
palate of people has gotten broader.
They have a proprietary product. They have a good value
proposition. They can double the size of their footprint just
with Chipotle, and more than that with their new food
Why are you finding so many promising names in consumer
discretionary, which has 32% of your assets by your in-house
We don't think they all sell discretionary products.
Dollar General (GD) is one of the dollar chains. It sells
basic goods and convenience at a low price.
The average ticket at Dollar General is around $10 per trip.
Pricing is similar toWal-Mart (WMT), but Dollar is more
Also, they are expanding into California. They have only one
store there now. They see an opportunity to grow their store base
there dramatically in the next five years.
They are well run. They buy back a lot of their own stock.
Their margin profile is improving quarter-over-quarter and
Tom, you ran Janus Twenty Fund from March 1988 through July 1997.
What are the differences between that fund and this one?
I would say there are no differences. Except now I might be more
experienced. It's the same fundamental research, same
concentration, and we're benchmark agnostic. We don't need
indexes. We don't follow them. They say you can't change your
stripes. We're not an organization where we change our
We're fundamental investors looking for high-quality companies
at the right price.
I'm a large shareholder in all of our funds at Marsico
Capital. We eat our own cooking.