The Observer is pleased to invite you to join a conversation with David Rolfe of Wedgewood Partners and manager of
RiverPark/Wedgewood Fund (RWGFX and RWGIX). This is the second of three calls with managers who have strong convictions and actually implement them. Those skeptical of funds with high cash stakes might appreciate the fact that David remains fully invested despite a wariness about a stretched market.
We will be joined by RiverPark’s president and co-founder, Morty Schaja. David runs a high conviction growth portfolio: about 20 names and an average holding period of four years. There are 750 “actively managed” U.S. equity funds which, today, own over 100 stocks. Mr. Rolfe’s estimate is that he’s owned barely 100 over the past quarter century.
For a guy whose portfolio trails 97% of its peers so far in 2013, David seems unruffled. Why might that be the case? Two factors stand out:
Wedgewood has crushed the competition over the past quarter century. And, frankly, over most periods since then. By way of example, David’s strategy returned 9.1% annually over past 15 years (through 3/31/13) against the S&P500’s 4.3%. Over the past five years he’s beaten the S&P by a margin of 12.6% to 5.8%. The margin of victory for the seven-, ten-, and twenty-year periods are comparable. David has been managing the portfolio throughout.
The marketers have no say over how things will run. As many larger fund firms because hostage to the need to gather assets, more managers know that they need to manage for mediocrity. That is, a single bad quarter or lagging year will cause their marketers to howl. David notes that such pressure is alien to Wedgewood’s long-term, performance-driven culture.
Our conference call with David will be Wednesday, April 17, from 7:00 - 8:00 EDT. Just click
REGISTER and you'll take been to the Chorus Call website where you'll register and receive a toll-free number and a PIN. As before, we'll try to divide the call in thirds: in the first third, they’ll talk us through the fund's genesis, universe and strategy. In the middle third, I'll ask a handful of questions - some suggested by folks on the Observer's discussion board. For the final third, we'll open the lines to your questions.
David engaged one of the Vanguard folks in the latest round of the “active/passive” debate at a recent conference. The issues in that debate suggested a couple topics that he’d like to address in his opening 20 minutes about what “active” managers can learn from the success of “passive” approaches. He believes that “active management” is sometimes miscast as “portfolio churning,” an approach he rejects. But he also thinks that most active portfolios are structurally flawed and that meddling by the marketers distorts the manager’s decisions.
As always, I'm looking for questions to raise with Mr. Rolfe. Folks looking to learn more might check our profile of RiverPark/Wedgewood or Wedgewood's just-released f
irst quarter 2013 shareholder letter.
So it's Wednesday, April 17, from 7:00 - 8:00 EDT. Just click
REGISTER. I'm really looking forward to the conversation and hope that you'll join us.
As ever,
David
Comments
And attendant M* performance plot through April 10, 2013:
I generally like their quarterly commentaries, straight forward and comprehensive, although I thought their most recent letter (1st Q '13) was a bit defensive. The letter acknowledges missed upside right upfront, but then points to all the usual culprits on why the current escalation is unwarranted (insert Mr. Bernanke’s experiment, Professor Shiller's inflated P/Es, unsustainable corporate profits, and expanded margin buys).
Interesting that Berkshire Hathaway BRK is seen as a growth stock. I would like to understand why they think so, as it usually seems more of a defensive holding.
I also like their sensitivity to protecting downside. They appear to be capturing virtually all of the large growth index performance longer term but with less volatility. I would be interested in better understanding what implicit philosophy, allocations or techniques (eg., thresholds, triggers) they employ, if any. Perhaps they could answer in the context of Apple AAPL, one of their highest conviction holdings and an underpinning of the fund's performance. I understand they first bought in 2008 (presumably for private accounts) and I see they added last quarter. Here is AAPL's rise and fall:
I like that they run a concentrated portfolio of "best ideas," some of which are described in this example: I think I understand their "business owner" approach, as championed by Warren Buffett. More than say looking for deeply discounted companies, they pursue instead "uniquely profitable, financially stable growth businesses that are trading at requisite attractive prices.”
I do not like their ER of 1.25, especially given AUM of $725M, in what appears to be an otherwise shareholder friendly shop. That ER translates to $7-8M a year. It's well over the median of 0.98. Institutional shares require minimum of $1M, even at Schwab, which is out of reach for most investors. So, I guess I'd like to understand why they believe their high ER is justified given the other quality, lower-cost offerings available. With the many pluses this fund has going for it, I suspect AUM growth in response to lower ER would more than make-up for any temporary short-term or perceived long-term shortfall in revenue to RiverPark Advisors and Wedgewood Partners. Lower ER would help turn their current bronze status to gold.
In any case, looking forward to the conference call as always.
Thanks David.