Portfolio managers can’t predict the future, but they can prepare for it. Seattle-based Zevenbergen Capital Investments, which invests in the themes of change and innovation, is all about doing just that.
Whether it’s a product of its environment or it has simply been in the right place at the right time, the firm has certainly been shaped by its location. Back in 1987, when the firm was launched, the Pacific Northwest was still synonymous with timber, air travel and other more traditional industries, but was on the verge of becoming the center of the tech revolution.
Microsoft, headquartered just a 20-minute drive away in Redmond, had just launched its now ubiquitous Excel program, and although Portland’s position as sibling to Silicon Valley and the advent of Amazon had not yet materialized, the new asset manager was well positioned – literally and philosophically – to take advantage of this change.
‘We had these really young companies that the rest of the world, and maybe the rest of the investment community, weren’t focused on,’ said Nancy Zevenbergen, president and chief investment officer at the firm.
‘We’re different geographically than a New York house, and because [these companies] are in our backyard we may have a better understanding of what they’re trying to do.’
Today, Zevenbergen Capital Investments is a $2 billion shop, employing 18 people, including five portfolios managers. The firm offers two funds: the Zevenbergen Genea fund and the Zevenbergen Growth fund, which can be found on the Charles Schwab platform, among others. The firm also subadvises the $27.4 million Virtus Zevenbergen Innovative Growth Stock fund. Virtus owns a 20% stake in the firm, with the other 80% owned by founder Zevenbergen.
She believes the firm’s focus on growth investing means the group has benefited from hiring younger managers and training them up in-house rather than hiring veterans.
‘Investing in growth is something that you have to learn [by] looking to the future and looking at what young people are doing, as well as what you see happening over the next 20 years,’ she said.
‘I think it’s something that needs to be taught early, and it’s a lot easier than trying to convert someone who has been a very value-biased individual.’ She said her managers must be comfortable purchasing companies that may be perceived as expensive by traditional measures.
The Zevenbergen Growth fund is a slightly less constrained offering than the Genea fund, although both have limited holdings, with 35 and 25 stocks respectively. On the Genea fund on which Zevenbergen is a named manager alongside four others, the team often generates ideas from industry conferences, newspapers and even the magazine Vanity Fair.
Over the last 12 months it ranks top of the 150 funds in the Citywire Multi-Cap Growth category, returning 44% versus the peer average 17.9%.
Winning investment from the fund is not particularly easy, though.
A series of quantitative screens are applied to the Russell 3000 Growth index to find companies with the right growth qualities.
Further screens then narrow the shortlist down to fewer than 100, before the team takes a deeper dive into fundamentals.
Company directors and clients are key barometers for the team, according to Anthony Zackery, a manger on the Genea fund.
‘We don’t always have the chance to meet with every single CEO but any person we can talk with at the company, we’ll take that opportunity,’ he said. ‘We’ll try to talk with customers, employees and competitors of the business to get a complete mosaic of if a company has an innovative product and is respected.’
One of the fund’s top holdings is Netflix, which exemplifies its desire for stocks that are disruptive and have high growth prospects, despite looking expensive to others.
Joseph Dennison, another manager on the fund, said the global nature of the business made it very attractive.
‘How many cable subscribers there are globally and how well Netflix’s model can transfer to that total market means there’s still a lot of running room. It’s just a fundamentally different and better product than what is on the market today,’ he said.
‘Streaming is the future. You see that’s where everyone else is moving and they [Netflix] are the first and the best out there plus there’s many more years of growth in subscribers as they continue to add talent to their studio and content.’
Zevenbergen’s focus on the future has got it where it is today. Who knows where it will take it tomorrow.