The stock market's
slide in the last two weeks is being embraced as a “selective” buying opportunity by Melissa Chadwick-Dunn, part of the four-person team managing the RS Small Cap Growth Fund Ticker:(RSEGX).
“We're looking at the pullback as a chance to add to some of the better stocks,” said Ms. Chadwick-Dunn, who manages the fund along with Allison Thacker, Steve Bishop and Scott Tracy.
The $600 million fund separates the market of smaller companies into three main categories.
The “promising” category, which can represent up to 10% of the portfolio, will include younger and sometimes unprofitable companies.
The “developing” category, which could be between 30% and 50% of the portfolio, is represented by companies that have established a competitive advantage and have better earnings, but are still early in the growth cycle.
The “proven” category, which tends to represent between 50% and 70% of the portfolio, is made up of the larger companies that have demonstrated a competitive advantage and strong balance sheet margins.
“Right now we're whittling down some of our promising names and adding to the proven companies,” Ms. Chadwick-Dunn said. “You have to be selective.”
A recent favorite in the portfolio is technology, and holdings include The Ultimate Software Group Inc. Ticker:(ULTI).
The developer of software for human resources departments is on track to double its revenues and operating margins over the next three to four years, according to Ms. Chadwick-Dunn.
While the share price has fallen along with the market over the past few weeks, it is still up 13.2% from the start of the year.
Over the same period, the S&P 500 is flat, and the fund is up 4.6%.
Another example of a company found in the portfolio is Ultra Salon, Cosmetics & Fragrance Inc. Ticker:(ULTA).
This boutique retailer is gaining share by going directly after the cosmetic departments at the large chain department stores.
According to Ms. Chadwick-Dunn, the Ultra Salon company is expected to grow from 400 stores today to about 1,000 stores over the next few years.
The stock is up 82.6% from the start of the year.
Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.
