The connection between music and portfolio management may not be obvious, but some of the most valuable investing lessons for portfolio manager Randall Dishmon came from his years as a professional banjo player.
“Even considering music as a career will teach you about risk and reward,” says Dishmon, senior portfolio manager of the $914 million
Invesco Global Focus
fund (ticker: GLVAX). “Music also teaches you to think without limits. It’s an expansive exercise, and I see investing in the same way.”
It isn’t just being a string-picker that has helped Dishmon, based in Winston-Salem, N.C., excel at stock-picking. His unconventional path to the financial industry has also informed his investment philosophy. He grew up in rural North Carolina, and after leaving the professional music world, eventually received a master’s degree in engineering from Johns Hopkins University in 1994, becoming a structural and environmental engineer. In 1999, he earned an M.B.A. from the University of Michigan and joined OppenheimerFunds as a senior analyst in 2001. Dishmon founded Global Focus there in 2007 and has been its sole manager since.
In 2019, Invesco acquired OppenheimerFunds, folding Global Focus into the firm. In the past 10 years, the Morningstar five-star fund has beaten 92% of its World Large Stock peers, with a 13.4% average annual return, and has also outpaced the MSCI All World Country Index during that period. In the past three years, Global Focus has outperformed the index and its category by double digits.
It has an above-average expense ratio of 1.27% for its category, but Dishmon says the slightly higher fee is comparable to other highly active, concentrated strategies. The fund currently holds 36 securities, with about half of assets in its top 10 holdings.
For Dishmon, debates over growth versus value investing styles or whether the U.S. or international markets will dominate miss the point. He says markets are going through structural—not cyclical—changes, and so he seeks companies thriving amid such structural change.
“Cyclical separates the world into growth and value,” but such stocks typically return to their long-term average levels after up markets or down markets, Dishmon says. “Structural separates the world into winners and losers, and losers go bankrupt.”
For Global Focus, he starts his research by looking for structural change—either new companies doing something different or older companies doing something new. The portfolio is heavily concentrated in three main sectors: technology; health care, specifically medical diagnostics; and communication services, including cloud software, e-commerce, and digital payments.
(FB) is a good example. After passing on the social-media giant’s 2012 initial public offering, Dishmon eventually grew interested as its economics “were really off the charts,” he says, because of advertising dollars and its acquisitions of platforms such as Instagram. He was interested in Facebook for about 2½ years, but the price wasn’t right until the 2018 Cambridge Analytica scandal hit, sending the stock’s valuation down sharply.
“The market narrative was that Facebook was evil,” he says. But in meetings with the company, regulators, and others, he decided the problem wasn’t morality but “smart, capable, good people dealing with an extremely challenging problem,” and he bought it.
Dishmon says 95% of his time is spent trying to get three things right when looking at a company: understanding its competitive advantage, being convinced it is well-managed, and buying its stock for less than it is worth.
The portfolio manager may spend more than a year identifying and understanding a company’s advantage. He likes companies with subscription models, ones with platforms, and ones that invest in research and development. Valuation is important—he learned that lesson when he had to account for profit and loss as the department head of a large private engineering company. He wants shareholder-friendly managers who are good stewards of capital. He seeks to balance risk and reward, leaving room for price appreciation, but also protecting from steep declines.
Note: Holdings as of Dec. 31. Returns through Jan. 25; five- and 10-year returns are annualized.
Sources: Morningstar; Invesco; Bloomberg
Retail is another area going through structural change, as more people shift to online shopping. Bricks-and-mortar stores struggle to compete with online retailers that can collect swaths of demographic data. After talking with e-commerce winners such as No. 5 holding
(AMZN), Dishmon discovered No. 3 holding
(TWLO), a cloud-based software company. It invested heavily in customer-service capabilities in a way others hadn’t, he says: “They have one of the best customer lists I’ve ever seen, and they’re transforming customer service on a large scale for companies that are modernizing.”
Thermo Fisher Scientific
(TMO) has a cultural trait that Dishmon loves: wanting to understand customers’ problems. The firm has one the best, most-complete platforms for the equipment and processes to run a lab, he says, and became successful by solving customers’ pain points. Thermo Fisher developed analytical techniques and built those into equipment that has the software to run a highly productive, automated laboratory. Its equipment is becoming the standard for universities, biotech companies, and others, Dishmon says. He bought the stock after a downturn in price. “People didn’t understand the quality of this company and the future of its business,” he says.
The strategy of betting on structural change can stumble, however, when cyclical stocks like commodities, energy, and real estate outperform—or when “the 19th century beats the 21st century,” he says. For example, 2014 and 2016 were tough years for the fund as cyclical stocks were hot, but Dishmon didn’t see any structural advantages in the businesses whose stocks looked cheap. “In some markets you have to take too much risk to get the reward, and that was a risk I wasn’t willing to take,” he says.
The only guarantee in Dishmon’s eyes is that structural change won’t stop. E-commerce will continue to take market share as part of total transaction volume, diagnostics will still be the focus of research dollars, and more businesses will move to the cloud. While enthusiasm for these areas may dampen at times, he says, “the fundamentals are what matter, and the fundamentals continue to impress.”
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