In the active vs passive investment debate, one firm that takes "high conviction" investing very seriously is Polen Capital Management, a firm that has recently launched a fund aimed at European clients.

When investors pay an active fund manager to hold a “high-conviction”
set of stocks, the concentration of equity choices cannot come much more
pronounced than at the fund management firm of Polen Capital Management, a
Florida-based business.

This is very much a “bottom-up”, stock-picking house that
adopts the “value” model of investing. And to signify the level of conviction
at play, the firm has only owned about 100 issuers’ equities in the past 25
years of Polen Capital’s life - a turnover of about four names a year. (It
holds about 20 stocks at present.)  But
such a low turnover does not mean managers are idle, as this publication
learned recently.

"We come out of the value school and apply this
thinking to growth stocks. The companies we are looking at are a bit faster
growing in the early part of the growth cycle and not paying out a lot of cash.
They are not, for the most part, big slow growth stocks. Our companies continue
to post strong earnings growth," Daniel Davidowitz, chief investment
officer and portfolio manager, said during a visit to London. His firm is based in Boca Raton. Davidowitz spoke alongside Stan
Moss, chief executive.

The managers spend considerable time examining businesses
with persistent, high-quality features at relatively early stages in their
lives. "You cannot just sit and wait until the [persistent features] are
out there and proven," Davidowitz said.

One way to find these unacknowledged business
"stars", he said, is to note that market prices consistently
undervalue growth companies due to the impatience of investors looking for
quick results. "If you are smart in studying businesses you can find those
firms that are good growth prospects,” he said.

The approach has paid off, the firm, which held $5.1 billion
of client money as of 31 March, says. With a track record going back to January
1989, Polen’s strategy - on which its funds are based - has returned 14.2 per
cent annualised compared with 9.8 per cent for the S&P 500 and 9.3 per cent
for the Russell 100 Growth Index. (Source: Polen Capital Management.)

Earlier this year, Polen brought its strategy to the
European market, launching a Dublin-registered UCITS vehicle, called the Polen
Focus US Growth Fund, managed by Davidowitz and Damon Ficklin. The Polen Focus US
Growth Fund is a sub-fund of Polen Capital Investment Funds. Share classes are
available in dollars, sterling, and Swiss francs. The fund will initially be
marketed to UK,
Swiss and Scandinavian based professional investors, primarily wealth and
discretionary managers, fund of funds and institutional investors.

Polen was originally founded in 1979 by the late David Polen
(who passed away last year) and was an asset management firm providing advisory
and brokerage services to clients. In the late 1980s, Mr Polen developed an
investment process and a distinctive growth-based investment philosophy in the
traditions of legendary figures such as Ben Graham and Warren Buffett, among
others.

That old active vs
passive debate

Moss argued that Polen’s persistent high-focus model has
paid off, even while other investment fashions have waxed and waned. And the
firm has seen its fortunes continue to thrive, he said, against a time of many
headwinds. According to some measures, more than $1 trillion of money came out
of the active equities sector and into other, supposedly less risky assets
between 2008 and 2012. While at the same time Polen grew by 500 per cent, Moss
said.

There are not many funds around like these, Moss said. The
number of specialist US-focused fund managers offering exposure to such a
concentrated, high-conviction portfolio for international clients in a UCITS
structure is relatively rare.

An extremely low portfolio turnover might suggest that Polen’s
managers have a quiet life, but reaching that narrow number of stocks from a
big universe requires constant research and conversations with companies across
the US.
Polen Capital Management reckons these efforts are worth it.