How does one outperform the S&P 500 Index by more than 10 percentage points? For Tom Slater, who is the head of the US equities team and long-term growth portfolios at investment firm Baillie Gifford & Co., the answer is “growth at an unreasonable price.” The U.K.-based firm manages about $324 billion. Slater helps run the firm’s Long Term Global Growth portfolios and the U.S. Equity Growth Fund, which is up 135% this year.
Slater explains how only 4% of stocks account for almost all equity returns. This has three major ramifications for fund managers. The first is a mandate to identify those few candidates that can be “winner take all” companies. Slater’s top holdings include many of those firms, such as Tesla Inc., Amazon.com Inc., Shopify Inc., Zoom Video Communications Inc., Netflix Inc., Alphabet Inc., Chegg Inc. and Mastercard Inc.
The second is how this impacts the discipline around the decision of when to sell, forcing fund managers to think even longer term than they normally tend to do. Third, a successful fund needs clients who exhibit patience and are willing to ride out normal periods of volatility and weaker returns. Slater also explains why a concentrated portfolio is more likely to outperform than one that resembles an index fund.
