All Cap vs Small and Mid Cap Fund

Summary

In this insightful conversation, Mick Cow and Chia discuss the launch and progress of the Monro Global Growth Small and Midcap Fund. They highlight the strategic decision behind its creation, the fund’s performance, and its focus on identifying high-potential small and midcap companies. The discussion also covers their top stock picks in key sectors like AI, digital media, security, and climate, emphasizing their investment strategies, domain expertise, and the role of AI in driving future growth. They share their excitement for 2025, anticipating a broadening application of AI across industries.

Takeaways

• 😀 Monro Partners launched the Global Growth Small and Midcap Fund as an extension of its existing growth investment strategies, aiming to improve domain expertise and identify opportunities in the small and midcap sectors.
• 😀 The small and midcap fund benefits from having over 10 investment professionals involved, making it a rare and collaborative effort compared to typical small-cap funds with fewer team members.
• 😀 The small and midcap fund focuses on high-performance computing, digital media, security, climate, and innovative health sectors, with investment picks for each area reflecting current trends and growth potential.
• 😀 In high-performance computing, Nick highlighted Nvidia as a major player, believing it will continue to grow, while Chia picked AeraLapse and ASM International as promising companies benefiting from AI and semiconductor trends.
• 😀 In digital media, Chia recommended Pinterest for its resurgence and focus on shoppable content, while Nick favored Meta (Facebook) for its significant investments in AI and social commerce, seeing strong growth potential at a low PE multiple.
• 😀 Curtis Wright was identified as a strong security stock by Chia, due to its 100% market share in nuclear coolant pumps in the US and its position in the defense and aerospace sectors.
• 😀 Axon, a small-cap security company, is benefiting from increased public safety spending, with its products such as tasers and body cameras supporting police forces, along with AI-powered innovations like drones.
• 😀 Constellation Energy was Nick’s top pick in the climate sector, benefiting from nuclear energy's role in carbon-free power, while the company has seen rising demand from hyperscalers like Amazon and Microsoft.
• 😀 Chia highlighted Verve, a company focusing on thermal and power management for data centers, which has gained momentum as the data center industry becomes more energy-intensive and reliant on cutting-edge cooling solutions.
• 😀 In innovative health, both managers favored companies benefiting from AI in medical diagnostics, with Nick recommending Eli Lilly for its position in the GLP-1 drug market, while Chia picked a small company, RatnNet, leveraging AI for early cancer detection through imaging.
• 😀 For 2025, both managers are optimistic about the continued growth of AI across industries, expecting broadening applications in sectors like security, climate, and healthcare, with a focus on companies benefiting from this trend.

Q & A

Why did Monro Partners decide to launch the Global Growth Small and Midcap Fund?

Monro Partners launched the Global Growth Small and Midcap Fund to enhance their domain expertise in smaller companies, building on their experience with all-cap strategies. The team believed it was the right time, as small and midcap companies had not performed well for a while, and they anticipated a significant bull market.

What are the key factors that have contributed to the success of the small and midcap fund over its first 12 months?

The success of the fund can be attributed to having a larger team of more than 10 investment professionals, allowing for a diversified and collaborative investment approach. Additionally, the firm’s broad support and effective investment process in more volatile small and midcap companies have been key contributors.

What is the unique advantage of having a larger team in running a small and midcap fund?

Having a larger team allows for more diverse perspectives, idea generation, and thorough analysis. This collaborative effort enables the fund to identify promising opportunities that might be missed by smaller teams running similar funds.

Which stock is currently favored by Nick in the high-performance computing sector, and why?

Nick favors Nvidia in the high-performance computing sector. He believes Nvidia has the potential to become the largest company globally due to its exceptional management and sustained growth prospects despite its current success.

What is the rationale behind Chia's recommendation of Aerolapse in the high-performance computing space?

Chia recommends Aerolapse because it is a pure-play AI high-performance computing company that specializes in connecting clusters of GPUs, which is crucial as more GPUs are clustered together in AI applications.

Why does Chia think Pinterest is an attractive opportunity in digital media and content?

Chia sees Pinterest as a unique opportunity due to its successful turnaround, new management, and its transformation into a robust e-commerce and advertising platform. With a low price-to-earnings multiple and strong growth potential, it is poised for further success.

Why is Meta (Facebook) considered a strong player in the digital media sector by Nick?

Nick highlights Meta’s significant investment in Nvidia GPUs, which has enhanced its recommendation engines. Additionally, Meta’s use of AI tools to improve its platform’s e-commerce and customer service functions positions it as a strong player with a low valuation relative to its growth potential.

What is Curtis Wright's unique position in the security sector?

Curtis Wright has a dominant market position in nuclear coolant pumps, which are crucial for U.S. nuclear reactors. Its specialized nuclear business, combined with its aerospace expertise, positions it uniquely to benefit from growing maintenance contracts for nuclear reactors.

How does Axon benefit from the increasing focus on public safety?

Axon, a company providing hardware and software for police, is benefiting from increased government spending on public safety. Their products, including tasers and body cameras, are used to improve policing, while AI tools are helping automate tasks such as report writing, increasing efficiency.

What makes Constellation Energy an attractive investment in the climate space?

Constellation Energy is attractive because it is the largest source of baseload carbon-free power in the U.S., primarily from nuclear energy. It has seen significant growth as major tech companies like Microsoft and Amazon secure large contracts for its carbon-free energy, driving its stock value up.

How did Verve capitalize on the increasing demand for data center thermal and power management?

Verve, a company specializing in thermal and power management for data centers, capitalized on the rapid growth of modern, energy-intensive data centers. Their partnership with Nvidia in developing liquid cooling solutions has made them a key player as data centers expand and require more energy-efficient cooling systems.

What is the long-term growth potential of GLP-1 drugs according to Nick?

Nick believes that GLP-1 drugs, like those from Eli Lilly and Novo Nordisk, have a long growth runway. As awareness increases and insurers begin covering treatments for conditions beyond diabetes, such as heart disease, these drugs are expected to see sustained growth for at least 8-10 years.

What role does AI play in transforming the healthcare sector, as mentioned by Chia?

AI is set to revolutionize the healthcare sector by improving diagnostics and treatment accuracy. Chia points out how AI algorithms are already being used to detect cancers earlier than traditional methods, and the technology is expected to expand into other areas like cardiology, benefiting healthcare companies like Ratnet.

What are Monro Partners' expectations for 2025, particularly in relation to AI?

Monro Partners expects 2025 to be the year of broadening AI applications. They anticipate that AI will continue to drive growth across various sectors, including security, climate decarbonization, and healthcare, creating more investment opportunities in both small and large-cap companies.