Mott Capital Management is a thematic growth fund that was founded in 2014 by Michael J. Kramer. Mr. Kramer manages a long-only thematic growth portfolio that has a stead and low turnover rate and contains an average of 20 stocks that are held over a period of up to five years. In addition to investing money on behalf of its clients, for which the firm charges only a management fee, Mott Capital also provides research and commentaries. Recently, Mr. Kramer has released his fourth-quarter and end-of-year review, outlining the fund’s performance in 2017 and providing its outlook for the current year.
In 2017, Mott Capital Management’s non-annualized returns amounted to 18.77%, slightly below the 21.83% gain registered by the S&P 500 Total Return Index. The fund had a number of winners and losers in the fourth quarter and full-year 2017. Mr. Kramer’s best-performing picks last year included Netflix, Inc. (NASDAQ:NFLX), Mastercard Inc (NYSE:MA) and Visa Inc (NYSE:V), while the top losers included General Electric Company (NYSE:GE), Celgene Corporation (NASDAQ:CELG) and Alkermes Plc (NASDAQ:ALKS), with the first two companies also ranking among Mott Capital’s top losers in the fourth quarter. It’s also worth mentioning that Netflix, Inc. (NASDAQ:NFLX) was one of Mott Capital’s top-performing picks in 2016. Later on we will see Mr. Kramer’s comments regarding his top winning and losing picks.
Similar to many other investors, Mr. Kramer is optimistic about 2018 and considers that the stock market will outperform the rally from the last year due to strong US economy and high earnings on the back of the tax reform.
“Earnings growth will be the key driver for the S&P 500 in 2018, and that growth is shaping up to be solid. According to Dow Jones S&P Indices, analyst estimates are calling for operating earnings in 2018 to rise by about 17 percent to $145.80, and nearly another 10 percent in 2019 to $160.03. The S&P 500 is almost as cheap as we start 2018, as it was to start 2017, trading at roughly 17 times 2019 operating earnings estimates,” Mr. Kramer said in his letter.
In this way, the investor considers that the S&P 500 will reach 3,100 in 2018, which would represent a growth of around 16%.
Mott’s top performing position in 2017 was its stake in Netflix, Inc. (NASDAQ:NFLX), whose stock gained over 55%. Mr. Kramer pointed out the company’s strong subscriber growth and “a significant effort to strengthen its content library”. He expects that in 2018, Netflix, Inc. (NASDAQ:NFLX) will continue its growth based on last year’s trends. “Netflix has a tremendous global reach, and international subscriber growth is still very much in the initial stages. Netflix is establishing itself a global media powerhouse and is the clear-cut leader in streaming media content,” Mott Capital’s letter added.
Credit card companies Mastercard Inc (NYSE:MA) and Visa Inc (NYSE:V) were also among the winners in Mott Capital’s portfolio last year, as both companies’ stocks appreciated by more than 46%. Mr. Kramer is betting on Mastercard Inc (NYSE:MA) and Visa Inc (NYSE:V) due to their role in the growing eCommerce space were they act as “toll collectors”. In 2018, Mr. Kramer expects that the stocks won’t show the same high gains, but “the growth story for both, is still intact, with both playing a vital role in eCommerce and are the leaders in the shift away from paper currency to a digital world.”
On the next page, we are going to take a closer look at the worst-performing stocks in Mott Capital Management’s portfolio.