John Barr has managed the Needham Aggressive Growth Fund since January 2010. In an interview with MarketWatch, he described the fund’s strategy of identifying “hidden compounders” among smaller companies and sticking with them through their stages of growth, and even through rough patches. This low-turnover approach has led to stellar performance.
Let’s begin with a chart comparing five-year total returns of both of the fund’s share classes, net of expenses, with the fund’s benchmark, the Russell 2000 Growth Index RUO , and with the S&P 500 SPX through June 13. The institutional shares were first made available in 2017. So let’s look at the same chart for 20 years, only showing the more expensive Retail shares:
After building up a position in hidden compounders, Barr expects to see companies go through transitional stages toward becoming “quality compounders” that can be held for many years. Barr said the fund’s top holding, PDF Solutions Inc. PDFS , fits into all the trends he described. “They have reinvented themselves several times since we bought [the shares] in 2009,” he said. “Some investors would trade through that, but as long as I see the long-term vision, I am not going to do that. So we are rewarded with a stock that has gone from $4 to $45. And our shareholders have not had to pay any taxes along the way.” PDF’s shares are up 57% this year, closing at $44.39 on June 13.
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