PM Corner: In conversation with Giri Devulapally
Portfolio manager and veteran growth stock investor Giri Devulapally discusses shifts in portfolio positioning and reaffirms his conviction that we’re in the early innings of a secular bull market.
Our process has always been agnostic as to which sectors or industries offer great growth stocks, and we'll go wherever we find opportunities…
Listen to Giri discuss how he is positioning for the recovery
At a high level, how do you approach growth investing?
Put simply, we want to invest in companies that have the ability to deliver significantly higher growth than market expectations over the next three to five years. In our view, great growth stocks possess three key characteristics:
- A large addressable market undergoing meaningful change
- Sustainable competitive advantages and strong execution
- Strong price momentum
Within our strategy, we also try to manage a few key risks and do so by focusing on capturing the big winners while mitigating the impact from big underperformers.
Let’s talk about portfolio positioning. What have you been buying?
We’re adapting our positioning to a changing opportunity set. We continue to shift into newer ideas where we see improving fundamentals but the stocks are just beginning to be recognized by the market. Our process has always been agnostic as to which sectors or industries offer great growth stocks, and we’ll go wherever we find opportunities that meet our investment criteria. Currently, we are finding attractive prospects within traditional financials, consumer and select industrials.
One of the things that is becoming clear is that all companies are essentially going to create competitive advantages to a substantial degree through the adoption of technology. John Deere is an excellent case in point. It has been building up its technology stack for years, and we think the payoff is close at hand. Deere is in a great position to increase the productivity of farmers both in the U.S. and around the world.
We’ve also been buying Freeport-McMoRan, a mining company that has been a fairly pedestrian stock for a long time. In a growing market for electric vehicles [EVs], the electric grid will need to be upgraded. EVs require more copper to build than traditional cars. So we anticipate a surge in demand for copper, which Freeport-McMoRan is very well positioned to benefit from.
How are you thinking about market expectations today, and how is that impacting what you’re paring back in your strategy?
We have stocks in our portfolio that have been 10 baggers and more in the last five years. So it’s been quite a strong run.
Consistent with our process, that leads us to be cautious about stocks that have significantly outperformed for long periods and, as a result, now trade at historically high relative valuations. These are the types of stocks that we have been paring back, because the disconnect between company fundamentals and market expectations is now much narrower.
More specifically, we’ve reduced our positions in some of the mega cap tech companies that have become large in the benchmark. Software, which was prominent in the portfolio as recently as 18 months ago, is now a much smaller presence.
Tesla is another name we’ve pared back. We have owned the stock since 2013 and significantly increased the position size starting in October 2019 as its fundamentals inflected positively. But now, after the stock’s extraordinary run, our perception of the company seems less differentiated relative to expectations. As a result, we’ve taken a lot off the table.
In August 2019, you wrote a paper, making the case that we were in the early innings of a secular bull market. Is that thesis still intact?
Here’s the gist of the thesis: If you look over the last 100 years or so, we see prolonged periods of above-average total returns with rapid recoveries from pullbacks, which we call secular bull markets. Secular bear markets are characterized by prolonged periods when market returns fall below norms and recoveries are slower. I think we are in a secular bull market that began in February 2016.
Bad things can still happen in secular bull markets. In the last secular bull market, from 1982 to 2000, we had both the savings and loan crisis and the crash of ’87. And yet markets recovered very quickly. Of course, I didn’t expect a global pandemic when I wrote the paper in 2019. But what have we seen? Even COVID-19 couldn’t keep the market down.
The companies/securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. J.P. Morgan Asset Management may or may not hold positions on behalf of its clients in any or all of the aforementioned securities. Past performance is not necessarily a reliable indicator for current and future performance.