Trends Watch: Investing in High-Quality Growth Companies

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.   

This week, Elana talks with Mark Vitelli, Senior Portfolio Manager, Compass Capital Management.  

What is your outlook for investing in high quality growth companies?  

Our firm, Compass Capital, has a positive long-term outlook for investing in high-quality growth companies.  One of the defining characteristics of the high-quality growth companies we invest in is that their management teams have proven track records of adjusting to, and thriving in, rapidly changing environments.  This is even more important now, as we are currently facing both economic changes and the political policy uncertainties that usually come with a change in presidential administrations. An environment like the one we are currently experiencing creates both opportunities and pitfalls for investors.   

What are the greatest opportunities you see and why?  

We see the greatest opportunities right now in sectors of the market that have left behind during the Magnificent Seven led, AI stock run of the past two years.  There are many companies that have grown both their revenue and earnings over the past few years and yet their shares are trading at attractive valuations.  During 2023-2024, an unusually large percentage of the returns in the S&P 500 Index were from a small handful of companies.  As a result, numerous growth companies saw their share price valuations, as measured on a price-to-earnings (PE) ratio basis, decline over the past two years.  

What are the greatest challenges you face and why?  

The two greatest challenges we face are educating people on the need to ignore the short-term noise in the market and not react to it and making sure we develop and devote the resources needed to stay on top of researching and understanding the ongoing changes in our investment universe.  On the first topic, our firm and the investment process we use have been around since 1988 and we have seen a variety of situations where the news headlines seemed ominous at the time, yet getting out of the market would have been a decision a person would have regretted.  We often use the saying "time in the market, not timing the market" around the office.

What keeps you up at night?  

As far as what keeps me up at night, the fear that we are not meeting our clients' expectations of us would likely be the biggest issue.  Yes, there is always the fear of a sharp market decline, like we saw during COVID-19 or the financial crisis and none of us in the industry want to ever go through that experience again.   However, the focus of each member of our team here at Compass is to make sure our clients’ expectations are met.  We take seriously the responsibility to be prudent stewards of our clients’ hard-earned assets and that is our focus each and every day. 

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.