Gerard Sullivan did not always plan on becoming a portfolio manager. Originally, he anticipated a career as a stock analyst. But as asset management took off in the 1980s, he found himself pulled into the industry, working with some of the most illustrious names in the business. It was under the tutelage of legendary investor Peter Lynch that Sullivan developed the edge that has served him in his career. In 1985, at a summer job in Fidelity, Lynch gave Sullivan what he thought was one of his most challenging assignments: covering European chemical companies. It was an endeavor that Sullivan said just “wasn’t done” back then. It was a time when there were few American depositary receipts, or ADRs, and no investor relations pages. To identify opportunities, the Columbia Business School grad had to navigate differences in languages and accounting and reporting standards. “I had to do all this, you know, as a schmuck from Brooklyn, right?” Sullivan said. “I had to figure this stuff out, and try and get these people to talk to me.” By the time Sullivan made a presentation of his findings, he felt as though he hadn’t made much progress on his questions. By his calculations, however, he had gleaned that the European chemical companies, which he said were trading at two to three times earnings, were far cheaper than their U.S. counterparts at the time —for businesses that were essentially in the same markets. At the end of that summer, six of his stock picks wound up in the top 20 names in the Magellan Fund. Four ended up in the top 10, Sullivan said. Even better, he said that all doubled over the next six months on a foreign exchange. The fund — one of the best-known actively managed mutual funds that surged under Lynch’s leadership — divested the names before they reached their peak, he said. “So, I was a big hit with him,” Sullivan said. “But I remember asking myself, how could you possibly put money into these names when I couldn’t get anything close to the research? I couldn’t borrow anyone’s research. I had to do it all raw.” “And he said to me, ‘You know what? You don’t know a whole lot compared to the guy in the office next to you. You don’t. But you do know more, maybe than anyone else,'” Sullivan said. “Meaning that I was the one-eyed man in the land of the blind, right? Everyone was blind looking at these companies but I was able to get one eye open to get around. And that’s all you needed to get an edge. And he was all about, and is still all about, ‘What is your edge?'” The numbers Today, Sullivan manages the Putnam Investments Core Equity Fund (PMYYX) , a multicap fund with $4.4 billion in assets that he started in 2010. Longtime collaborator and friend Arthur Yeager came on board to co-manage it in 2017. PMYYX is known as a “go anywhere” fund, as it invests in all styles and market capitalization sizes, targeting ideas in both growth and value stocks. It’s an approach that has given the investors flexibility to follow ideas where they suspect they have an edge, across a wide range of assets. Their process has served the two managers well. In December, PMYYX was ranked in the top 1% of peers in its category, according to Morningstar. It’s in the top quartile of funds this year, as well as the top 6% of funds across a 10-year time horizon, returning an annualized gain of roughly 13%. “The numbers are good,” Sullivan said. “If I’m still here, it’s because they are pretty good.” ‘Stay awake’ Sullivan enjoys investing in beaten-down stocks where he expects the downside will be limited and a little good news will boost the stock. “Those are my favorites, actually, because if I’m right about not losing money, you can wait it out better then, without panicking,” he said. This can include companies coming out of bankruptcy. One example he cited was researched by his partner Yeager: Pacific Gas & Electric, a California-based utility company that filed for bankruptcy in 2019 after facing claims from deadly wildfires in 2017 and 2018. The stock cratered, but Sullivan kept in mind some of the company’s advantages, which included a trust set aside by the state to handle liabilities and a strong management team brought on from Michigan-based utility company CMS Energy, which Sullivan called “the best utility on Earth.” After all, he said, “people need electricity” in the state of California. PG & E emerged from bankruptcy in 2020 and the stock jumped more than 14% that year. “It’s been a good little name for us. That’s an interesting situation. It took a lot of work, and it takes a little bit of courage, but it also isn’t so risky,” Sullivan said. “Companies that come out of bankruptcy, they sound like they’re risky situations because they had been risky, but they’re usually coming out with brand new balance sheets, with brand new management, and it could be coming out at a beautiful price. If you stay awake.” “We love those situations,” he said. “They don’t come around a lot, but when they do, we pay attention to them.” He also prefers getting to know the management teams of lesser-known companies set to go public. Even if he does not invest with them from the start, the initial research can help him ascertain whether he should jump in if there’s a dip in the stock later on, as often happens with companies that have just debuted, according to Sullivan. Mid-cap opportunities PMYYX holds more than 100 companies. A majority of the top 10 holdings are in the “Magnificent Seven” companies, an allocation that has helped the fund outperform this year. After all, Nvidia , the third-largest holding in the fund, has surged roughly 80% in a little over three months. ( Tesla is the one Magnificent Seven company notably absent from the top 10 holdings). But Sullivan said he holds the megacap tech names with a loose hand. While he considers some more overvalued than others, he noted that it’s hard to dismiss the tech giants that have come to account for so much of the S & P 500’s market capitalization, which are still growing even as they show signs of maturing. Nowadays, Sullivan said the attraction is more in smaller companies where he suspects the market isn’t as picked clean. “There’s a lot of small caps that we’re working on, and we’re buying bits and pieces of them,” he said. “But we’re in the middle of that.” Still, he’s avoiding troubled businesses, preferring names that are making money and appear to be in protected markets. “They may not be growing real fast, but enough speed, and they look cheap,” he said. “Because they’re very, very cheap compared to the large-cap peers.” Last year, the investor started building positions in small- and mid-cap companies that he thought were attractive. PMYYX has a 0.11% position in Pinterest , the image-sharing platform that jumped more than 52% last year, though it’s fallen more than 11% in 2024. Another is LPL Financial , the financial advisor platform that gained more than 5% last year, and more than 14% this year. PMYYX has a 0.15% allocation, as of March. One larger company that Sullivan recently bought is FedEx , which he said is on the right track with new management looking to combine the air express and ground businesses. CEO Rajesh Subramaniam succeeded the company’s founder in 2022. Sullivan also noted that the transport stock remains attractive, relative to its peers such as UPS , limiting downside. And, it’s nearing the end of a capital expenditure cycle that could boost free cash flow, he said. The portfolio has a 0.22% weighting in FedEx, as of March. “I think that’s where FedEx is setting up that way, their free cash flow yield is going to go well into the double digits,” he said. “We think they got the right plan in place.” Ultimately, Sullivan said he’s learned a lot from other investors, noting the good stock pickers have had “pretty eclectic” approaches that helped them outperform the market over time. “I’m a good student, you know, in the sense that I’ve learned a lot from observing,” Sullivan said. “And I found the good fortune over the decades to be around pretty good stock pickers, pretty good money managers.” “We intend to do well in all markets, no matter what. I mean, otherwise, what the heck am I doing, you know, if I’m not trying to get that right?” Sullivan said. “That’s still the way I feel about it.”
Sumber: www.cnbc.com
