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Active Growth Equity & Fixed Income Investing

Jun 8, 2023

In this episode of Engaging Alternatives Spotlight, Elana Margulies-Snyderman, Director, Publications, EisnerAmper, speaks with Liridon Gila, Co-CIO/ Portfolio Manager at Sawgrass Asset Management, a Jacksonville, Florida based active growth equity and fixed income investment manager. Liridon shares his outlook for investing, including the greatest opportunities and challenges, how the firm is integrating ESG and DEI and more.


Elana Margulies-Snyderman:
Hello, and welcome to the EisnerAmper podcast series. I'm your host, Elana Margulies-Snyderman. And with me today is Liridon Gila, CO-CIO and portfolio manager at Sawgrass Asset Management, a Jacksonville, Florida-based active growth equity, and fixed income investment manager. Today, Liridon will share with us the outlook for investing, including the greatest opportunities and challenges, how the firm is integrating ESG, DEI, and why. Hi, Liridon. Thank you so much for being with me today.

Liridon Gila:
Thanks for having me, Elana.

Absolutely. So to kick off the conversation, tell us a little about the firm and how you got to where you are today.
Well, Sawgrass Asset Management is an institutional boutique shop with investment strategies in equities and fixed income. We started the firm back in 1998. We focused primarily on public pension plans and Tart-Hartley union plans, and most recently we've had a pretty good growth with the advisor assisted SMA business. I joined the firm back in 2008 as a portfolio manager on fixed income side, focusing primarily on portfolio management, credit research and trading. And later on I started covering the entire capital structure doing credit research and equity research. And most recently I got promoted to a CO-CIO portfolio management role, pretty much overseeing the overall risk framework for all the strategies that we have in-house in equities and fixed income.
Liridon, that segues into the next question. Given Sawgrass' focus on active growth, equity and fixed income, love to hear your high level outlook for investing in those strategies.
We look at the outlook for growth equities and fixed income in the context of where we are in the economic cycle and looking at the trends of monetary policy and fiscal policy. And right now we actually see a very challenging environment for risk assets in general. If you look at the economy, we believe we have a fairly high probability of facing recession in the near term. Also with monetary policy, the Fed is still highly restrictive. They still continue to hike rates and they're also doing quantitative tightening, essentially withdrawing liquidity from the system and reducing the balance sheet. And then finally, with regards to the fiscal policy, although it's been highly accommodative, we would say at the margin it's turned less accommodative, so it's sort of restrictive at the margin. So overall, I would say it's not a highly accommodative environment for risk assets. So with that in mind, we forecast a range-bound market in the near term for growth equities.

We think the current analyst estimates are fairly optimistic for growth equities, and we should expect some elevated volatility as we go through this adjustment process of de-risking those estimates. With regards to bonds, we are a little bit more positive on bonds. We believe that the inflation has peaked and we're going through this normalization phase, and given the current high level of interest rates, we think that that should be a pretty good environment for bonds in the next couple years. We should expect some pretty decent positive return, total return for bonds in the next few years.
Liridon, given that backdrop, where are some of the greatest opportunities that you're eyeing and why?
We see the best opportunity in large-cap GARP and small-cap growth space. With regards to large-cap GARP, that is growth at a reasonable price. We think that high quality companies with high return invested capital, consistent growth of free cash flow, pristine balance sheet, and very low overall debt levels trading at a reasonable multiple relative to historical averages. Those types of companies offer the best risk reward profile. For example, a company like S&P Global, a company that we own, is a perfect illustration. Here you have a high quality company with consistent earnings growth, high recurring revenue, roughly 81% of their revenue is recurring, trading at a reasonable multiple, low debt levels. And you have a management that has a stellar track record of generating value for shareholders. We believe those types of companies offer the best risk reward profile in this challenging environment. Also, I mentioned small-cap growth.

Small-cap growth has underperformed large-cap growth by a significant margin in the last decade, and we have these large moving cycles, and we believe that we are at the beginning of a rotation back towards small-cap, and we should expect small-cap growth to outperform going forward, at least for the next few years.
Liridon, on the other hand, given everything going on right now in the markets, what are some of the greatest challenges you face and what are you doing to conquer them?
The greatest challenge we see is actually the extreme concentration in the large-cap growth space. You have five companies that make up 37% of the market, and that is an extreme concentration. It is at a record level versus the historical averages. There's no doubt that the index in passive investing has really benefited in the last decade as a result of this cheap money policy that the Fed has implemented over the years with a series of quantitative easings and taking the balance sheet from sub 1 trillion to all the way up to 9 trillion. The index investing has been one of the biggest beneficiaries generating strong double digit annualized returns in the last decades, and more importantly, the mega cap stocks have actually led that out performance. We think that going forward, it's going to be very challenging at the index level to generate those types of returns we've gotten used to in the past, given the fact that we have this extreme concentration and the Federal Reserve has pivoted in terms of pursuing restrictive policies. And also you've got a very elevated valuation, especially for large cap, mega cap stocks.

So we think that a better approach would be to have a high quality active approach with an emphasis on fundamentals and valuations and low price volatility. We think that would be a better risk reward profile for the next few years.
We on to shift gears a little bit, ESG, DEI are top of mind for the investment industry and wanted to see how Sawgrass is addressing these important topics.
What we are mindful of the ESG and the DEI trends in our industry. With regards to the ESG, we have implemented two third party ratings, ESG ratings to our holdings. We've also established the monetary policy and a minimum ratings criteria, but this is all done on a post-trade basis. And it's really to confirm our view that typically high quality companies tend to have a very high rating in ESG. With regards to DEI, we are mindful and we understand the importance of the diversity of our team and management. As we mature as a firm, we've taken steps to address the succession, and most recently we've promoted Alicia Dator to president of the firm. Alicia has been with us, with Sawgrass for over 20 years, and she's worked at different capacities. So this is one of those many steps we hope to take as a firm in the future to solidify the next generation of leadership.
Liridon, we've covered a lot of ground today and wanted to see if there are any final thoughts you'd like to share with us.
Well, our plan is to continue to grow and grow the assets, constantly improve and enhance our culture at firm. We want to continue to build on the legacy we started back in 1998 at Sawgrass. We built the foundation on institutional, but we would like to diversify in the advisor assistant and the DC market. But more importantly, we want to continue to help our clients reach their future financial goals, and that's our number one priority.
Liridon, I want to thank you so much for sharing your perspective with our listeners, and thank you for listening to the Is EisnerAmper podcast series. Visit for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

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Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.

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