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- Thomas O’Halloran manages the Lord Abbett Growth Leaders Fund, which has more than quadrupled investors’ money in nine years by investing in high-growth tech, consumer, and healthcare stocks.
- He’s even more optimistic about the coming decade, reasoning that the combination of the “technology revolution” and low interest rates should keep a secular bull market going through 2030.
- He also says there’s little reason to worry about the market dominance of Big Tech because companies like Microsoft and Amazon are innovating in ways that help other companies succeed.
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“These companies are the greatest companies the planet has ever seen,” he said of Apple, Microsoft, Amazon, Alphabet, and Facebook. “I don’t worry about it at all, the concentration. I look at instead what they are enabling.”
As evidence he’s not worried about concentrated market leadership, the tech giants are five of the six biggest positions in the Lord Abbett Growth Leaders Fund, a high-growth mutual fund O’Halloran co-manages. According to Morningstar, they comprised 24% of his portfolio as of May 31.
Innovation Why O’Halloran is bullish on growth tech
The Growth Leaders Fund invests in companies that are addressing markets with great potential, have momentum on their side, and stocks that are on the rise and positioned for long-term gains. It’s more than quadrupled investors’ money since June 2011, and Kiplinger ranks it as one of the best large-company stock funds of the past three years.
“This is essentially investing in the technology revolution,” he said. “It’s getting stronger with each passing year.”
O’Halloran says he won’t be surprised if the next decade looks even better, and here, he’s also breaking with a common opinion on Wall Street. While some experts think the 2020s are going to be uninspiring for investors, he thinks technological innovation is opening the door to great times for stocks.
“We consolidated from 2000 to 2013. We’re only six years into this secular bull market. We’ve had three bear markets already. So I think this market continues in a secular bull market for the balance of the decade,” he said. “We have low interest rates, tremendous innovation, and amazing companies.”
He adds that these tech companies are also reducing costs and eliminating inflation. That contributes even more to the bull case because it means that in the future, they’ll be able to keep even more of the profits they make.
Because of his belief in what his companies and stocks can achieve, O’Halloran says he’s not looking for bargains and undervalued companies. In fact, if a stock has been down long enough to look like a real bargain, he won’t invest in it. By the time those stocks have become bargains, he explains, they’re often in the midst of painful losing streaks.
“Stocks tend to have life cycles, for these very high potential growth companies. They’re typically one to four years with an average of 18 months,” he said. While it’s not unusual for a stock to go up fivefold over that period, that cycle will often end with a steep loss over a period of six to nine months — as much as 50%, he said.
He and his co-managers and analysts want stocks that are giving off signals that they’re entering a sustained rally. The most important of those is the 150-day moving average.
“What we usually require is some evidence that fundamentally the tide has turned, the stock goes rising up through the 150 day moving average, and then has a chance to begin a new bull market,” he said. “These great companies that have the biggest growth potential trade at premiums for years, if not decades.”
Innovation Bets on AI, biotech
The major themes in the portfolio today include cloud computing, represented by companies including Microsoft and Amazon; artificial intelligence, filled by Nvidia — although O’Halloran notes that there aren’t many pure plays in that field yet — and biotech companies like Vertex Pharmaceuticals and Immunomedics.
While diagnostics occupy less space in the Growth Leaders portfolio than they do in some of the small-company portfolios O’Halloran runs, he thinks that’s a highly promising area.
“They’re not big overweights yet, but we think they will be,” he said. “In three to five years, I’d expect to see more diagnostic companies in our top 10.”
He also thinks all cars will be fully electric a decade or decades down the road, and further in the future, they’ll be fully automated. For now, he says Tesla is the only way to invest in that idea.
“I think there will be big gains over the next five years in electric vehicles. And Tesla is the one company that is focused on it, exclusively,” he said. “All the other companies are burdened by their legacy in the internal combustion machine.”
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