A fund manager who doubled clients’ money in 2020 lays out 2 big bets on companies that are inventing new markets, and the 3 biggest themes he’s buying into

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Stories are an important part of Gerry Frigon’s approach to investing, and that helped make the last year a big success story for him.

His Taylor Frigon Core Growth Fund has returned 99% to investors over the 12 months that ended on February 28, according to data from Kiplinger. Over a slightly different period, data from his firm, Taylor Frigon Capital Management, shows a return of 128% from his Aspire Small-Cap Strategy over the year that ended April 30.

Asked about the changing investing environment as inflation increases and the pandemic’s influence on the economy fades, Frigon says he’s still focused on the highest-growth companies and not worried about inflation or the state of the business cycle. 

“We’re only focused on the economic side of things from the standpoint of trying to determine, through what we call our narrative investment process, what are the areas of the economy that are going to see the most innovation and growth going forward,” he told Insider in an exclusive interview.

His Core and Aspire portfolios contain three of those big ideas, which Frigon calls schema: demographics, business processes, and technology. It’s important to note that the three concepts are interwoven and influence each other. That creates something of a multiplier effect.

“We think in each one of those cases, you can then build narratives around what what’s coming,” he said. “You want to look to companies that are supporting, that are innovating around those particular ideas.”

The business process theme might have been the biggest contributor to Frigon’s success in 2020, as the pandemic left a huge number of companies hungry for more information about their own  businesses. That led to big opportunities in areas like software.

“In this period where we saw such economic disruption, businesses were just scrambling like crazy to try and figure out, ‘OK, how do we operate in a much more efficient way?'” he said. “So much of what we saw happening here over the course of the last year was something that we had been expecting would happen anyway.”

The growing wealth of millennials and their distinct preferences are a major demographic theme. They’re relying on technology in all aspects of their lives, including mobile banking, and that’s forcing financial institutions to invest in changing their ways.

As for technology, Frigon says he looks for companies that are building innovative technology or using it in new ways that can revitalize an industry. He’s especially intrigued by the future applications of blockchain technology.

“We think that the trend there is towards distributed computing,” he said. “And so we’re looking for companies that support that.”

While he’s held numerous tech companies and recently sold his Nvidia stock after a 17-year run, Frigon says he hasn’t yet found the ideal way to invest in that trend.

Frigon’s favorite long-term picks

While a successful company changes a market, the best companies invent new ones they can dominate for years. Frigon named two of his favorite stocks that fit the bill.

Kornit Digital (KRNT)

The Israeli company was Frigon’s largest Core Fund holding as of April 30, and it’s appreciated about 600% in the four years he’s held it. He says the company’s use of 3-D fabric and textile printing is allowing designers to try new designs and products without taking the risk that a big print run will fail.

“The designer doesn’t have to take the big risk of, ‘Well, gee, I hope everybody likes what I made,'” he said. “They can simply print out what they made and see if it works, and if it does, great.”

Nano Dimension (NDNM)

The manufacturer is the tenth-largest holding in the Core Fund, and it’s roughly doubled in value since Frigon bought it in November on its way to a nearly 200% gain over the last 12 months. Frigon says it’s creating a market for 3-D printed electronics.

“What they’re doing is building machines that will allow not just prototyping of PCBs, but small and even ultimately getting to intermediate size runs of printed circuit boards and other types of electronic devices,” he said.

That will give manufacturers the ability to churn out a lot of new equipment cheaply, without an expensive revamp of their chip foundries.

Source: https://www.businessinsider.com/