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Portfolio > Portfolio Construction

2011 SMA Manager of the Year, Large-Cap Growth: Wedgewood

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Large-Cap Growth 2011 SMA Manager of the Year

Wedgewood Partners Inc.

Large-Cap Focused Growth Strategy

Throughout the month of April, AdvisorOne will focus on separately managed accounts: the money manager options advisors have, the platforms through which they can gain access to those managers, how they can conduct due diligence on those managers, and how advisors are using SMAs in client portfolios.

We begin our coverage by presenting the Investment Advisor-Prima Capital seventh annual Separately Managed Account Managers of the Year. In a feature article in the April 2011 issue of Investment Advisor, seven managers in six different asset classes were chosen as "A Class Apart."

In this article, we focus on St. Louis-based Wedgewood Partners' Large-Cap Focused Growth Strategy, winners in the large-cap growth space.

The philosophy: A long-term-focused research process coupled with disciplined valuation and low turnover to produce long-term returns, “investing as ‘owners’ in companies.

The portfolio: A focus on select companies that the firm’s research suggests has the brightest multi-year prospects for growth.

The performance: 
2010 performance (company supplied).

Strategy return: 15.34%

S&P 500: 15.06%

Return since inception (9/92-12/10): 12.53%

S&P 500 retunr since inception: 8.32%

Total AUM (12/31/10): $657 million (See firm’s Form ADV Part II.)

The peopleInvestment Advisor Editor John Sullivan spoke in March with David Rolfe, CFA, CIO of Wedgewood Partners Inc. Team members include president and founder Anthony Guerrerio, a West Pointer and Harvard MBA; Dana Webb, CFA, senior portfolio manager; and Michael Quigley, CFA, portfolio manager.

David Rolfe, Wedgewood Partners' CIO.

Large-Cap Growth Award
Wedgewood Partners Inc.

Large-Cap Focused Growth Strategy

Ask David Rolfe for the firm’s elevator pitch and he has it at the ready.

“We’re big subscribers to the arguments put forth by Charles D. Ellis, author of ‘The Loser’s Game’,” begins Rolfe, chief investment officer of St. Louis-based Wedgewood Partners. “Instead of trying to time the markets and getting sucked into short-term volatility, we take a long-term view and let the markets work for us. Too many of our competitors try to do otherwise, and we refuse to play that loser’s game. That, quite simply, is our investing philosophy. ”

This longer-term view naturally leads to a big belief in—and heavy reliance on—index investing which, as Rolfe notes, by definition is buy-and-hold investing. This means the firm has a history of minimum turnover in the portfolio. As a corollary, Rolfe notes, this approach also affects the firm’s stock selection.

“If we expect to invest in companies for many years, we focus on those select companies with the brightest multi-year prospects for growth,” he says. “Additionally, our view


on risk is contrary to the typical manager as well. We don’t view risk via individual security price volatility, rather all of our risk analysis is centered on the individual business.”

The second time’s the charm for the 22-year-old firm, as Prima has previously recommended Wedgewood for an SMA award. In recommending the firm this year, Prima said it was “pleased the manager is looking to grow its business through the SMA channel and is solely focused on the large-cap growth strategy.”

Wedgewood believes consistent execution of its fundamental, long-term-focused research process coupled with disciplined valuation can produce excellent long-term returns, according to Prima. The strategy has delivered, producing top quartile performance on an absolute and risk-adjusted basis over the last three, five and 10 years. Wedgewood builds a concentrated portfolio of 18 to 22 stocks trading at a deep discount to their estimated intrinsic value that are typically driven by two factors: overly conservative consensus estimates and compressed valuation multiples.

Confirming Rolfe’s long-term views, Prima says Wedgewood is a very patient investor focused on a three- to five-year outlook which typically results in low turnover. Over the past five years, portfolio turnover has ranged between 30% and 53%, which contributes to its tax efficiency. Additionally, Wedgewood is able to accommodate tax loss harvesting at client request, further improving potential tax efficiency. The firm was a strong candidate for the large-cap growth SMA award due to its ownership structure, talented and tenured investment team and consistency of alpha generation.

The investment team includes Anthony Guerrerio, president and founder; David Rolfe, chief investment officer; Dana Webb, senior portfolio manager; and Michael Quigley, portfolio manager.


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