Best Mutual Funds: Stock Traits This Portfolio Loves

Like a championship football team that masters blocking and tackling, $6.7 billion Carillon Eagle Mid Cap Growth Fund (HAGAX) is among the best mutual funds because it does the basics right. “We try to find companies that illustrate accelerated growth rates,” said co-manager Bert Boksen. And referring to leaders in the portfolio such as ServiceNow (NOW), Shopify (SHOP) and Dexcom (DXCM), he added, “In addition, we try to find companies with some sort of catalyst for that accelerated growth.”


Co-manager Eric Mintz says he, Boksen and fellow helmsman Chris Sassouni look for one additional factor: “Our objective is to be early in identifying those ideas.”

Find companies whose earnings growth is speeding up. And find them before your rivals do. That’s the foundation for the fund’s strategy.

You can’t argue with the results. The fund is a 2020 IBD Best Mutual Funds Award winner, having topped the S&P 500 in calendar 2019 as well as over the three, five and 10 years ended Dec. 31 on an average-annual-return basis.

Best Mutual Funds: Why This Fund Qualifies

Year to date going into Wednesday, the fund is up nearly double the broad market benchmark. Its return of 20.04% vs. the S&P 500’s 10.57% puts the fund on track to repeat as an IBD Best Mutual Funds Awards winner next year.

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Its midcap growth peers tracked by Morningstar Direct are up 18.41% on average.

Why One Of The Best Mutual Funds Bought More Shopify

The fund took advantage of the coronavirus pandemic downturn to beef up its share count in Shopify. Mintz said, “We did add to our position in March. The name was inexplicably punished during the market turmoil.”

Shopify offers an e-commerce platform that’s designed to help businesses sell goods online. With many people avoiding potential Covid-19 infection in crowds, shopping on the web has exploded in popularity. Shopping in brick-and-mortar stores has subsided.

Shopify’s growth has sped up. But while investors were figuring out winners and losers, Shopify fell from a Feb. 12 pre-pandemic high of 593.89 to a March 18 nadir of 305.30.

Is Amazon Like The Evil Empire In ‘Star Wars’?

The Mid Cap Growth Fund managers reasoned Shopify was bound to rebound. They liked its business model. And they see it as a classic underdog destined for success. Mintz frames it in terms of Hollywood’s David-vs.-Goliath saga “Star Wars.”

“Clearly, they (Shopify) are the best provider of e-commerce solutions,” Mintz said. “They’re the enabler of the Rebel Alliance fighting the imperialistic Galactic Empire, Amazon if you will. As midcap managers, we can’t invest in ($1.75 trillion market cap) Amazon. But we can invest in ($119 billion market cap) Shopify.”

The shop-from-home trend rewarded Shopify. In the second quarter, the number of new stores created on Shopify’s platform increased 71%. Its revenues rose 97% year over year. “Shopify is the sweet spot of enabling retail businesses to compete against Amazon,” Mintz said. “Amazon in 2019 had a nearly 40% market share of e-commerce. All Shopify platforms had about 5%. So clearly Shopify has a long runway to go.”

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Shopify shares now trade around 1,130.

Why One Of The Best Mutual Funds Trimmed ServiceNow

ServiceNow is another beneficiary of more work being done in the cloud due to more people working from home.

ServiceNow started by supporting large companies’ information technology operations. Now it is expanding into human resources, facilities management, customer service and security.

The company’s software creates a running log of how it helps customers. ServiceNow’s behind-the-scenes support is crucial for keeping computer-dependent businesses up and running. And customers discover they can use ServiceNow’s logged processes in more departments. The more departments they serve, the more vital ServiceNow is to that customer. And ServiceNow’s recurring revenue stream grows.

The fund has trimmed its share count in recent disclosures. That reflects only the fund’s need to stay within its midcap mandate, not a loss of faith in ServiceNow. “We’ve used (the proceeds of trims) to add to names in our midcap sweet spot, mainly under $20 billion in market cap,” Mintz said.

How Dexcom Is Partnering With Alphabet

Dexcom is another holding that Carillon Eagle has trimmed. But, again, only for market cap reasons. “The stock graduated from the Russell midcap to the large-cap benchmark,” Sassouni said. “My outlook for the company remains unchanged. Its competitive advantages are doing nothing but growing.”

Dexcom makes a continuous glucose monitoring (CGM) system. It eliminates the need for people with diabetes to pierce their finger to test a blood sample. Instead, Dexcom produces a body-worn monitor.

“This is a truly disruptive solution for managing diabetes,” Sassouni said. “It will have a runway for years. In 2021 and 2022, Dexcom will come out with a monitor the size of a dime. It’s being developed with Verily (owned by Google parent Alphabet (GOOGL)). They’re in trials. It is so unobtrusive it will get even greater adoption. CGMs will become the standard of care for diabetes.”

See also  197 Industry Group Rankings | Financial Terms - IBD Key Terms - IBD University

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and active mutual fund managers who consistently outperform the market.


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