AI & Electrification Themes Power Small & Mid-Cap Growth

SPEAKER_1 (0:00)

Joining me right now, Drew Cupps, portfolio manager and head of the Five Perspectives Growth Team at Polen Capital. And I'm glad you're with us because I was thinking about tax efficiency. That's something that you focus on, looking how to hedge. That's what some of these ETFs are, serving your customers. Tell us more.

Drew Cupps (0:19)

Well, I think what we're trying to do is we've developed a strategy over 25 plus years that is focused on identifying powerful themes and timely companies to drive overall returns for investors. And we want to wrap that in the most efficient tax vehicle we can, and that's an ETF. So that's our interest in ETFs.

SPEAKER_1 (0:46)

So let's go into this a bit more because we think about the fundamentals and particular themes that we could be seeing. I mean, you brought to us today small, mid-company growth, PCSG, the five perspectives ETF on that. Tell us about that.

Drew Cupps (1:02)

Well, yes. Well, what we think we do differently than a lot of other managers is we bring together three disciplines. So fundamental discipline, that's the one we know. That's management teams, business models, valuation, of course.

Then we combine that with technical discipline and also a thematic discipline. We believe that in the center of those disciplines is where optimized performance lives. So that's our unique approach and it's served us and our investors well over a lot of years. We're excited to bring that to investors. We launched these ETFs earlier this year, both a small, mid-ETF that you mentioned, as well as a large company ETF.

SPEAKER_1 (1:52)

So this certainly diversifies a portfolio. Are you telling folks at this point to lean towards one over the other based on their risk appetite?

Drew Cupps (2:03)

No, not really. Although large is certainly a lower risk from a volatility standpoint versus small. However, we like the risk reward for each.

We think there's a little more upside with small. There's a little more stability with large. My team and I have the privilege of operating across the market spectrum, executing this strategy, finding what we believe are really compelling ideas in both the small universe as well as the large universe. And they're often connected by thematic underpinnings, a thematic environment, and that's really important.

SPEAKER_1 (2:45)

What's a business environment like when you look at the thematic way of investing and creating the businesses for specific kinds of companies? Are there themes that you are seeing now in the global economy standing out?

Drew Cupps (2:59)

There are, it's really interesting, right? We all have spoken so much about AI over recent years. We've had a big theme around electrification, which is especially in the smaller and mid-size company space. These are the companies that bring the power to market. They are the enablers of power that the big guys, the Microsofts and NVIDIAs need to power their chips. They're connected.

It's interesting, during the correction this summer, a lot of people, there was a lot of discussion, a lot of good debate about whether the AI trade or I'll say the power trade or the semiconductor trade, which are all kind of connected, whether those trades are over. And we have a pretty firm belief that they're not, they may evolve slightly post this correction, but we think that a lot of the really nice opportunities are in the same place that they were prior to the correction, that the same dynamics, thematic drivers continue to be in place. They, it's the same thematic drivers, a semi-desperation for power, a build out of AI infrastructure that really are shaping our global economy, both earlier in the summer, today, and we think for a few years to come. And so we think earnings growth is really going to dominate the show, even in the context of the Fed this, the Fed that, a little more economic strength, a little more weakness.

The company is growing 30% plus with even more earnings growth. That's really hard to move away from despite a little higher inflation or a little lower interest rate or vice versa on either.

SPEAKER_1 (4:56)

Drew, it's great to speak with you. Drew Cupps, Polen Capital. Thank you.