05 May 2022

By Polen Capital

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Polen Capital Global Growth Q12022 Commentary

 

Many companies, during the first quarter, reported a slight deceleration in growth as a result of the pull forward dynamics from COVID. And many of these companies suffered significant selloffs as a result of this deceleration. As long-term investors, Polen Capital exploited these price movements by adding to our positions. Portfolio Manager Jeff Mueller reviews first quarter 2022 in this video.

TRANSCRIPT

There were a number of exogenous factors that converged during the quarter that we believe contributed to our relative underperformance during the quarter. These range from persistent inflation to tightening monetary policy from central banks globally as they act to combat that inflation, to supply chain issues, to COVID acceleration dynamics, and heightened geopolitical risk as a result of Russia’s invasion of Ukraine. Despite these exogenous factors, we remain convicted in our philosophy, our process, and our portfolio’s ability to continue to compound underlying earnings per share at strong rates.

Many companies, during the quarter, reported a slight deceleration in growth as a result of the pull forward dynamics from COVID. And many of these companies suffered significant selloffs as a result of this deceleration. As long-term investors, we exploited these price movements by adding to our positions in SAP, Align, Amazon, and Adobe. And initiating a new position in Netflix.

In the case of Netflix, we’ve been following this company for many years and are happy to own this at what we believe is an attractive price. Additionally, Netflix is now free cashflow positive with that free cashflow poised to grow only further from here. And lastly, we’re starting to see signs suggesting that the industry is consolidating.

There have been a number of short-term selloffs recently that we, as long term investors, have taken advantage of. One example is Align Technology. It experienced a deceleration in cases shipped primarily as a result of the Omicron variant, which resulted in the closure of many offices owned by orthodontists and general practitioners.

We were happy to add to our position as we believe Align is getting stronger each quarter because of management’s execution, their solid strategy, and their prudent capital allocation. Additionally, Align is exhibiting the dynamic of increasing returns to scale. And during this last quarter, even though there is a deceleration in key shipments, scanner growth jumps significantly. And historically, scanner sales have been a great indicator of future clear aligner sales.

We believe that the global growth portfolio is very fairly valued today and is well-positioned to compound underlying earnings per share going forward. This is despite the fact that we may see interest rate rises or continued inflation.

 

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