Media Appearance
MSIM’s Dennis Lynch featured in Business Insider
Business Insider selected MSIM's Head of Growth Investing, Dennis Lynch, to engage in a series of five exclusive interviews.
 
 

Media Appearance

MSIM’s Dennis Lynch featured in Business Insider

 

May 30, 2018

  • Dennis Lynch is the head of growth investing at Morgan Stanley Investment Management.
  • In an exclusive interview with Business Insider, he reveals two companies that recently captured his attention, prompting him to buy them for his funds.

As a fund manager, if you want to outperform both the market and your peers, you have to identify some sleepers.

Sure, you can buy the usual suspects that have seen torrid share expansion in recent years — companies like Amazon, Alphabet, and Facebook— but to truly stand out you have to generate and act upon unique ideas.

It's an approach that has worked for Dennis Lynch, the head of growth investing at Morgan Stanley Investment Management, where he's the lead manager of six funds and directly oversees $27 billion. He has been the top-performing large-cap fund manager on Wall Street in recent years, a feat that would be impossible if he were choosing the same stocks as everyone else.

With that in mind, it's important to note that Lynch's express purpose isn't to beat his peers — or even the market — over a specific period. He's instead laser-focused on building a portfolio of companies that are either disruptive or insulated from disruption.

If those companies perform as Lynch expects by maturing into the industry-altering forces he envisioned, the returns take care of themselves.

So what kind of companies fit the bill? Lynch was kind enough to share with Business Insider two companies that have recently captured his attention to the point where he's added them to portfolios.

Veeva Systems

"When they came public, Veeva was a dominant provider of customer relationship management (CRM) software for the pharmaceutical industry. They're what people refer to as a vertical SaaS company, which dominates a specific industry, or a niche within one.

"These can be very dominant platforms. Once one company is providing that service to a significant amount of an industry, it can put other players at a disadvantage if they don't adopt it as well. These businesses also tend to be very sticky, with low churn and high renewal rates.

"We believe investors had viewed the company as having strong prospects, but limited to pharmaceuticals and CRM (customer relationship management). In the process of serving their healthcare clients, Veeva developed a product called Vault that helps pharma companies manage complex content and data across various workflows when they are doing pharmaceutical trials. They can track, manage and store all of that information seamlessly on Veeva Vault.

"As it turns out, that kind of product might have much greater potential beyond healthcare, for any companies and industries that have complex data sets that they need to manage and track in regulated environments, such as the chemical industry.

"The Vault product is becoming more of a horizontal SaaS type solution that might have much bigger endgame potential than their initial business.

"We thought investors had been underestimating the potential of Vault for some time. Our conviction got much stronger over the past couple of years."

Shake Shack

"Generally, restaurant and retail can be very challenging to invest in, but Shake Shack has a highly unique culture, brand and value proposition. Danny Meyer is one of the most thoughtful and creative leaders in the restaurant industry.

"Shake Shack's unit economics are also really compelling due to significant recurring usage by its customer base.

"After the IPO a few years back, the stock price went kind of crazy, followed by a long period of significant underperformance.

"We bought Shake Shack on the IPO, but then sold it when its valuation went too high in a relatively short time frame. During the past year when the stock price declined due to general concerns about the restaurant industry, we bought a significant stake in the company as the valuation become compelling again.

"The most important thing for Shake Shack is how their units are opening outside of their core markets. The types of volumes they have been getting are really strong, and at a level that suggests that there could still be significant value creation, despite its high short-term P/E multiple, as the company grows to its endgame or full maturity."

 

IMPORTANT DISCLOSURES

The opinions are those of the Business Insider and Dennis Lynch as of the date presented and are subject to change at any time

due to changes in market or economic conditions. The comments should not be construed as a recommendation of individual holdings or market sectors but as an illustration of broader themes. The material does not purport to address the financial objectives, situation or specific needs of any individual reader. The use of this article is not a solicitation, or an offer to buy or sell, any security or investment product. Moreover, the opinions expressed in this article are not necessarily those of Morgan Stanley or its employees.

The reference to the "top large cap portfolio manager" refers to the best out of all large-company stock funds tracked by Kiplinger for the Multi-Cap Growth Trust.

This is a general communications which is not impartial and has been prepared solely for information and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The material contained herein has not been based on a consideration of any individual client circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

The holdings discussed are not all of the Portfolio’s holdings and not all holdings performed in a similar manner as the holdings discussed. Please click below for the fact cards which include details on the top ten holdings.

Multi-Cap Growth Trust

Growth Portfolio

RISK CONSIDERATIONS

There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the Portfolio will decline and that the value of Portfolio shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed countries. Privately placed and restricted securities may be subject to resale restrictions as well as a lack of publicly available information, which will increase their illiquidity and could adversely affect the ability to value and sell them (liquidity risk).

Please consider the investment objective, risks, charges and expenses of the fund carefully before investing. The prospectus contains this and other information about the funds. To obtain a prospectus download one at morganstanley.com/im or call 1800-548-7786. Please read the prospectus carefully before you invest or send money.

Morgan Stanley Distribution, Inc. serves as the distributor for all Morgan Stanley Funds.

Morgan Stanley Investment Management (MSIM) is the asset management division of Morgan Stanley.

NOT FDIC INSURED | OFFER NO BANK GUARANTEE | MAY LOSE VALUE | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A DEPOSIT

It is important that users read the Terms of Use before proceeding as it explains certain legal and regulatory restrictions applicable to the dissemination of information pertaining to Morgan Stanley Investment Management's investment products.

The services described on this website may not be available in all jurisdictions or to all persons. For further details, please see our Terms of Use.

Not FDIC Insured—Offer No Bank Guarantee—May Lose Value
Not Insured By Any Federal Government Agency—Not A Deposit

Privacy & Cookies    •    Terms of Use

©  Morgan Stanley. All rights reserved.

Morgan Stanley Distribution, Inc. Member FINRA/SIPC.