Gaps in the efficient markets theory create plenty of investing opportunities — even in some of the world’s largest companies, according to David Rolfe, chief investment officer at Wedgewood Partners Inc., which has $775 million under management.
“Wall Street is pretty efficient, but it’s not perfectly efficient,” he said. “We’re trying to capture long-term attributes of leading growth companies, and we don’t need that many terrific ideas to move the needle.”
Mr. Rolfe cites Apple Inc. Ticker:(AAPL) as an example of where Wall Street is missing the message. “The company has outgrown its stock price, and the Street has not given the company enough credit,” he said. “Wall Street is missing the scale and scope of the story.”
In January, Mr. Rolfe set his 2011 earnings estimate for Apple at $21 a share, while the average analyst estimate was at $15.
The average analyst estimate has since come up to around $18, while Mr. Rolfe is holding firm at $21. “We’re always looking for a disconnect with the Street’s long-term growth expectations,” he said. “We’re only trying to invest in a relatively small number of companies that we think are mispriced.”
The basic strategy is to concentrate on about two dozen stocks that are typically held for a long time, leaving a portfolio with an annual turnover rate of about 20%.
This is what Mr. Rolfe is bringing to the new RiverPark/Wedgewood Fund, one of five funds launched a week ago by RiverPark Advisors LLC. RiverPark has just $100 million under management and none of the new funds has a ticker symbol yet.
The RiverPark Large Cap Growth Fund and RiverPark Small Cap Growth Fund are being managed internally.
The RiverPark Gravity Biased Long Fund, which will go long and short stocks and exchange-traded funds, is being subadvised by Gravity Capital Management.
The RiverPark Short Term High Yield Fund is being subadvised by Cohanzick Management LLC.
In Mr. Rolfe’s portfolio, the top four holdings are Apple, Google Inc. Ticker:(GOOG), Express Scripts Inc. Ticker:(ESRX), and Visa Inc. Ticker:(V).
Visa, he explained, is another example of where Wall Street is not seeing the big picture.
“The Street is paying too much attention to the impact of financial reform,” he said. “Visa is not a company that takes credit risks, they just issue the card and earn money along the way of the transactions.”
While some of the regulatory reform efforts do focus on the fees charged by companies like Visa, Mr. Rolfe pointed out that this is a global company and the U.S. market exposure is “relatively small.”
“We’re fishing right now in an unloved pond of inefficiently priced stocks,” he said.
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.
