Chris Mack's fund has crushed its competition for 15 years. He shares 3 little-known stocks driving his market-beating record, and tells us why he just dumped Amazon.
- Chris Mack is portfolio manager of the Harding Loevner Global Equity Portfolio, a fund that has outperformed its peers on a five-, 10-, and 15-year basis.
- In an interview with Business Insider, he discussed some of the lesser-known companies that are boosting his portfolio, and explained why he recently sold ultra-popular Amazon.
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Amazon is one of the most popular stocks on Wall Street for good reason.
Its 2,804% gain since the bull market began in March 2009 has made many an active manager richer at a time when their industry is shrinking.
And so when Chris Mack, a tech-analyst-turned-investor decided to sell Amazon, he knew it was a major break away from the herd.
"It's a gutsy call - it hasn't worked in the last two weeks," Mack recently told Business Insider.
If outperforming the market requires taking non-consensus views, a move like this could produce the kind of result that has helped Mack's fund beat its competition in the past. The Harding Loevner Global Equity Portfolio he co-manages has outdistanced both its index and its peers on five-, 10-, and 15-year bases according to Morningstar data.
Mack explained that he simply did not see any upside left in Amazon's stock. He was concerned that the web-services giant could soon suffer margin erosion because of competition from the likes of Microsoft and Alphabet, he added.
He was also aware of the endowment effect, which is the idea that people are likelier to keep an item they own than buy the same thing when they don't own it. Mack decided to put client capital to work in other stocks instead of slavishly holding on to Amazon.
One of these alternatives was PayPal, his largest holding and a firm he expects to expand its margins.
For now, he has no idea whether selling Amazon was the right or wrong call. But he is sticking to a number of investing principles that have worked for the firm where he has spent his entire 15-year career.
These include getting ahead of competitive threats, putting one's eggs in multiple baskets, and not conflating a stock's performance with the health of the underlying business.
Additionally, Mack's process involves finding little-known market opportunities that show similar growth characteristics to companies that receive lots of media and sell-side attention.
It helps that his fund is global, meaning that its quantitative models can drum up interesting recommendations which no one on the team would otherwise have thought about.
His recommendations below, excluding Vertex, are domiciled internationally but have US listings or American Depositary Receipts.
1. Abcam
"They invest in developing antibodies, which are used essentially for clinical research in pharmaceutical development.
"Antibodies are actually 10% of the cost of a typical R&D budget for investigating new drugs. But their quality is ultra-important. And so even though they're not raising prices and jacking things up, they have strong bargaining power because no one wants to skimp on that 10%.
"They're doing some more customized work with some of the bigger pharmaceutical companies catered around their trials, which they think could double their addressable market.
"Right now, antibodies are about a $3-$4 billion addressable market revenue opportunity, growing at 4-5%. The other more customized work - where they think that they can exchange their technology for royalties or license-type revenue - could double that to an $8 or $9 billion addressable market.
"It's a smaller company. But it's got the quality and the durability."
2. Linde PLC
"You always have a need for industrial gases for production or other types of innovation. There's a cyclical element to them but they have high-quality, durable-growth characteristics."
3. Vertex
"They do cystic fibrosis drugs [to treat a condition that can lead to severe breathing problems].
"They're addressing this population of 70,000-75,000 people worldwide - half of which are in the US - and allowing them to live, healthy, sustainable lives that are more productive.
"Ultimately, governments find value in providing subsidies for that as opposed to some of the other things where it's more about price gouging - things like EpiPen. That's not sustainable. You really want to make sure that you're looking at companies that are run sustainably."
