Growth investing tips from Morgan Stanley fund manager Dennis Lynch – Business Insider

  • Dennis Lynch’s mutual funds have ranked among the best in the world for the last decade, with some returning more than 200%.
  • Lynch also runs Morgan Stanley’s Counterpoint Global equity division, which handles more than $140 billion in assets. 
  • In September, he told Goldman Sachs about his current long-term ideas and positioning. 
  • Visit Business Insider’s homepage for more stories.

Some investing legends eventually become stock market pundits — someone whose opinion might be respected, but who doesn’t have their finger on the market’s pulse.

Dennis Lynch might ascend to that kind of status one day, but he seems to be in no hurry to get there. The head of Morgan Stanley’s growth-focused Counterpoint Global business, which manages more than $140 billion in assets, Lynch has managed a slew of the best stock funds in the world for almost 20 years.

It’s a sign that Counterpoint is achieving its goal of picking long-term growth companies. Some highlights of his resume: The firm’s Insight Fund is in Wall Street’s top 1% for the last 10 years and the Growth Fund has beaten 99% of its rivals for 15 years. The Advantage Fund outranked 96% of competitors for a decade.

Counterpoint’s more globally focused funds can brag of the same kind of success thanks to managers Lynch brought on board, including Kristian Heugh.

But Lynch isn’t riding some long-ago successes to top rankings. Relative to the competition, the funds mentioned above are doing just as well over shorter time spans as they did five or ten years ago. Some can boast of 100% returns just in 2020.

In a September interview as part of Goldman Sachs’ Talks@GS series, Lynch told Katie Koch of Goldman Sachs Asset Management how he’s positioned for the future today.

While Amazon remains a bedrock of many of Lynch’s portfolios, he says he’s looking for newer e-commerce leaders “in addition to the obvious Amazons of the world,” as earlier-stage companies might deliver stronger growth. Examples from his funds include Shopify, Wayfair, and Carvana.

A concept that paid enormous dividends during the pandemic was Lynch’s focus on new forms of IT “in order to enable remote computing and distributed work essentially and communication.”

He added Zoom Video to many of his portfolios in late 2019, and it’s now the largest single position in several funds because of the company’s enormous success in the last nine months. Okta and Slack are significant positions as well.

Compounding has worked to Lynch’s advantage in tremendous ways over the years, and he emphasized that these new ideas aren’t replacements because some themes that are working still have a ton of potential.

“For many years we focused on areas like internet advertising, streaming, and within health care, technology solutions like genetic sequencing and robotic surgery,” he said. “We’re still very interested in those areas.”

Major holdings along those lines include Intuitive Surgical and 10x Genomics. While Lynch isn’t giving up on those bedrock ideas, he says he’s diversifying his funds and adding more software as a service companies. 

“We’ve transitioned a bit and broadened some of the portfolio out to own more companies that maybe are lesser known today but that are leaders in software-as-a-service-type solutions,” he said. Examples from his funds include The Trade Desk and Datadog.

He added that in 2020 he’s had to pay more attention to the markets his companies serve, balancing the risks faced by firms that mostly sell to COVID-threatened small businesses against the increased adoption of their services.

The uneven effects of the pandemic have also pushed Lynch to balance two competing factors for some investments and potential investments. Some of them are benefiting from greater adoption of their products, which he always wants to see. But in some cases their customers are smaller businesses who are in more danger than their larger peers.

“In some cases you think, “Oh, boy, here’s a company we really like long term, but they rely upon, you know, small, medium businesses. And what’s going to happen to those companies and their end markets?” he asked.

Lynch also told Koch that the toughest test he’s faced in his career is figuring out how to invest in newer companies that are still raising money. Those stocks can have tremendous upside but face much higher risk because of their precarious financial states.

The greatest danger is “if you run into a 2008 or a 2020 and suddenly you don’t have access to the capital you thought you did,” he said. “One big lesson is just when you’re dealing with situations like that, really thinking about sizing of a position, both individually and also in aggregate at the portfolio level.”

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