Navigating Investing in Today's Markets with Bryant VanCronkhite
Bryant VanCronkhite emphasizes the importance of defining "quality" in investments, highlighting his team's focus on unique assets, strong free cash flow, and financial freedom as key characteristics.
Transcript
Cameron Pickoski: We're here today at our National Sales Conference in Fort Lauderdale, where the theme is “Charting the Course.” So, with that in mind, Bryant, let's talk about how you're navigating investing in today's market. There's been a lot of talk about a broadening of the equity market this year and a general thinking that it's probably a good idea to look toward more quality small- and mid-cap companies. What do those look like to your team?
Bryant VanCronkhite: I think it's a great theme for this year. Earnings quality was one of the worst-performing factors last year, and this is the year for quality to begin to shine again. But quality is probably the most overused term in the investment dictionary. People think of quality as meaning many different things, right? So, it's important for each investment manager, each process to define their own view of quality. And for us, there are a few key characteristics. Number one, the company has to have a unique asset that provides a competitive advantage. That asset is the only reason they have the number two thing, which is strong, predictable, and consistent free cash flow. And then finally, we want to own companies when they have that quality tilt around their balance sheet—meaning the balance sheet is a lot of financial freedom. Financial freedom is the way you create future value. So, we want to have a spread between their current debt levels and their optimal debt levels. And as they move toward optimal, they're using that money to create future free cash flow. That's the virtuous flywheel we want to see, and that flywheel is what we call “quality.”
Key takeaways
- Defining Quality: Quality is a subjective term, and each investment process must clearly define what it means. For Bryant's team, it centers on specific measurable traits.
- Key Characteristics of Quality: For the Special Global Equity team, companies with unique assets, predictable free cash flow, and strong balance sheets are prioritized.
- Financial Freedom Drives Value: A balance sheet with financial freedom can enable companies to optimize debt levels and generate future free cash flow, creating a "flywheel" of value.
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