| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | 5.9% | 5.9% |
TimesSquare Capital Management's U.S. Small/Mid Cap Growth Strategy returned 5.90% net in Q1 2024, underperforming the Russell 2500 Growth Index's 8.51% return primarily due to not owning Super Micro and MicroStrategy, which accounted for over a quarter of the index's return. The portfolio's fundamental research-driven approach focuses on companies with quality management and sustainable growth across multiple sectors. Key investment themes include AI and GenAI infrastructure development, data center energy demands that could reach 20-25% of U.S. power consumption, and electrical grid upgrades driven by energy infrastructure limitations. The manager actively trimmed positions in strong performers like Shockwave Medical (up 71% on J&J acquisition news), Krystal Biotech (up 42%), and several industrial names while adding to Five Below on weakness. Healthcare utilization strengthened beyond GLP-1 themes, while consumer spending remained mixed with value-conscious behavior. Looking ahead, the team monitors central bank policies and election developments while maintaining their bottom-up investment approach focused on earnings growth and business fundamentals.
TimesSquare Capital Management focuses on fundamental research-driven growth investing in U.S. small to mid-cap stocks, seeking companies with quality management, distinct competitive advantages, and strong sustainable growth while navigating a market environment dominated by AI and technology infrastructure themes.
Looking further into 2024, markets will keep a close eye on central banks and the election booths. Many central banks telegraphed plans for easing rates with the notable exception of Japan where the BOJ recently ended its negative interest rate policy, though remained dovish by continuing to buy government bonds. As bottom-up investors, we seek underpinnings to near-term valuations in the form of expected earnings growth and other business fundamentals.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Apr 15 2024 | 2024 Q1 | ASND, ATRC, BJ, BMBL, FIVE, FND, FRPT, GLBE, HQY, IAC, IAS, KRYS, MAX, MTDR, MTZ, NVDA, RAPT, SN, SWKS, VC, WHD | consumer, energy, growth, healthcare, industrials, small caps, technology | - | TimesSquare's SMID cap growth strategy underperformed in Q1 due to missing mega-cap AI winners but maintained disciplined fundamental approach. Portfolio benefited from AI infrastructure themes, data center energy demands, and healthcare strength while navigating mixed consumer spending. Active position management included trimming winners and adding to select weaknesses, positioning for continued technology infrastructure investment and grid modernization opportunities. |
| Dec 31 2023 | 2023 Q4 | ASND, ATRC, BJ, CYBR, ESAB, FIVE, FLYW, FROG, LEGN, LSCC, PCTY, PRA, RAPT, SYNA, TER, TPG, VC, WK, WNS | Biotechnology, cybersecurity, growth, healthcare, industrials, small cap, technology | - | TimesSquare's small/mid-cap growth strategy underperformed in Q4 despite strong cybersecurity and biotech holdings. The manager actively trimmed winners and added to quality names on weakness, positioning for structural growth themes including cybersecurity demand, healthcare innovation, and industrial automation addressing labor shortages. |
| Sep 30 2023 | 2023 Q3 | ALGM, BJ, DRVN, EME, GFL, HCP, HLNE, HQY, INSP, LESL, MODG, MTSI, NEWR, PHR, PLNT, PRAA, RETA, STVN, TPG | consumer, financials, growth, healthcare, industrials, small cap, technology | - | TimesSquare's small-mid cap growth strategy outperformed in Q3 2023 by focusing on quality companies with pricing power amid labor inflation and consumer weakness. Industrial infrastructure benefits from supply chain reshoring and government spending while cloud adoption resumes after cost-cutting pauses. Consumer discretionary remains challenged by trade-down behavior, leading to selective exits and cautious positioning. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2024 Q1 |
AIGenAI fever remained a market focus with NVIDIA's 82% gain driving returns. Corporate spending and equity markets remained uninterested in anything else beyond cybersecurity and GenAI. Capital expenditures for technology infrastructure should continue through 2024, with a gradual shift toward preparing corporate data for GenAI applications including data warehousing, real time streaming, cybersecurity, and search. |
GenAI Technology Infrastructure Data Warehousing Cybersecurity |
Data CentersGenAI's insatiable energy needs drive greater interest surrounding energy production, procurement, and transmission for power-hungry data centers. According to industry experts, those data centers could account for as much as 20% to 25% of U.S. power demand, up from 4% or less today. |
Energy Demand Power Infrastructure Grid Capacity | |
Grid UpgradeCurrent limitations on existing electrical grids should drive more activity among Industrials, especially equipment suppliers and engineering contractors. This activity will also be propelled by moves toward regional or local energy self-sufficiency. |
Electrical Grid Industrial Equipment Energy Infrastructure | |
CybersecurityAcross Technology and related services, only cybersecurity and GenAI seemed to matter to corporate spending and equity markets. The shift toward preparing corporate data for GenAI applications includes cybersecurity as a key component. |
Corporate Spending Data Security Technology Services | |
| 2023 Q4 |
CybersecurityCybersecurity remains a top priority for companies, propelled by recent well-publicized cyberattacks at MGM Resorts, Caesars Entertainment, and Clorox. New SEC disclosure rules on cyber risks took effect in December 2023, requiring additional governance rules for cyber risk management strategy. IT budgets will continue growing, with cybersecurity becoming an increasing percentage. |
Cybersecurity IT Security |
BiotechnologyBroader biopharma strengthened with many new drug trials underway. The FDA has a more constructive and predictive stance with a normalized schedule for meetings and onsite inspections. The portfolio includes several biotech companies developing novel therapies for rare indications and specialized treatments. |
Biotechnology Pharmaceuticals FDA Drug Trials | |
AutomationIndustrial capital expenditures may continue to be a bright spot for several years as structural labor challenges are addressed with greater automation. Companies are investing in automation solutions to address workforce challenges and improve efficiency. |
Automation Industrial Labor | |
OnshoringSupply chains are moving closer to home, particularly away from China. The U.S. is in the early stage of increased domestic infrastructure spending related to recent government programs, supporting the onshoring trend. |
Onshoring Supply Chain China | |
| 2023 Q3 |
CloudWhile cloud adoption is still nascent, businesses slowed spending earlier this year as part of cost-cutting measures. Companies are now in better financial positions and beginning to reengage with cloud initiatives, with green shoots noted by some holdings. |
Cloud SaaS Enterprise Software |
GLP1Enthusiasm for new GLP-1 obesity treatments touched nearly all areas of healthcare and consumer discretionary. Some sentiment seems extreme, especially how medical technology stocks were punished, but this may create investment opportunities. |
GLP1 Obesity Healthcare | |
Infrastructure SpendingIndustrial infrastructure benefits from increased spending as companies reassess supply chains due to geopolitical pressures and higher costs of long-distance shipments. Government support programs for infrastructure investments create significant project backlogs for holdings capable of improving industrial efficiency. |
Infrastructure Industrial Government Spending | |
Trade DownConsumers have traded down with spending habits or tightened wallets, partly responding to higher expenses from rising credit costs and energy prices. This makes the manager more cautious about consumer-oriented companies. |
Consumer Trade Down Spending | |
OnshoringCompanies are reassessing supply chains in the face of geopolitical pressures and greater costs or risks with long-distance shipments, causing growing shifts of production capacity to local regions. |
Supply Chain Geopolitical Local Production |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| No Elevator Pitches found | ||||||||||
| TICKER | COMMENTARY |
|---|---|
| NVDA | NVIDIA Corporation's 82% gain as technology capital expenditures to fuel GenAI fever remained a market focus |
| IAS | Integral Ad Science Holding Corp. provides digital advertising verification services. The company reported a decent fourth quarter, with beats to sales and profit estimates. However, initial 2024 guidance was disappointing to investors and the stock retreated by -31%. Management disclosed they are offering more competitive pricing to strategic accounts. While near-term revenues will be impacted, they believe there are significant up-sell and cross-sell opportunities among this cohort. |
| IAC | IAC Inc. is engaged in media and Internet businesses including ANGI and Dotdash Meredith (DDM). DDM provides digital and print publishing services. ANGI Homeservices offers repair, remodel, cleaning, and landscaping services through their marketplace. Its shares edged forward 2% on solid fourth quarter results and better forward guidance. DDM's digital advertising business saw significant improvement, while ANGI made incremental improvements. |
| BMBL | Bumble Inc. is an online dating services company with its Bumble and Badoo mobile applications. Fourth quarter results were steady and in line with Street estimates. 83,000 net users were added to their application in the quarter. Despite these positives, it does appear that revenue guidance disappointed investors as its stock price traded down by -23%. |
| MAX | New to the Communications sector this quarter was MediaAlpha Inc., a marketing technology company that helps auto and health insurance carriers and distributors target and acquire customers through technology and data science. |
| SN | SharkNinja Inc., a global product design and technology company offering consumer solutions, rose 22%. Fourth quarter results exceeded estimates, highlighted by gross margin expansion. For 2024, management is guiding above the sell-side on all metrics. |
| FND | Floor & Decor Holdings Inc. is a specialty retailer of hard surface flooring and accessories. Revenues and earnings outpaced estimates in the latest quarter. That led to a 16% gain for the stock and we trimmed the position on this strength. They do not believe the recent Red Sea transport issues will have any major impact on gross margins given the limited assortment coming through that route. In addition, management highlighted continued efforts to diversify their supply chain and reduce exposure to China. |
| BJ | BJ's Wholesale Club Holdings Inc. operates membership warehouse clubs. Its shares gained 14% after they reported better-than-expected comparable sales growth along with in-line revenues and earnings for their fiscal fourth quarter. Highlights of the quarter were increased membership and customer traffic. |
| GLBE | Global-e Online Ltd. supplies cross-border e-commerce solutions. The company exceeded fourth quarter expectations on the strength of services revenues. However, full-year guidance was below Street projections due to a slower ramp from new and larger merchants. While these forecasts disappointed investors and sent its stock down -8%, we believe management is taking a prudent approach. |
| FIVE | Slipping by -15% was Five Below Inc., a discount retailer offering accessories, home goods, games, toys, and novelty items. Revenues were in line with expectations while earnings were below as the company needed to increase expenses to offset in-store losses. Those efforts to mitigate shrinkage should provide longer-term benefits, though it may not be until later in the year that Five Below's shares reflect that. We added to the position on this weakness. |
| VC | Visteon Corporation designs and manufactures automotive electronics, primarily for driver information and display clusters. Early in the quarter we liquidated the position due to slower Battery Electronic Vehicle adoption. Its shares fell -4% while the stock was held in the quarter. |
| MTZ | Also exiting the portfolio was Vail Resorts Inc., an operator of destination mountain resorts and ski areas. Underwhelming snowfall in the company's North American facilities dampened the ski season outlook. Vail Resorts edged forward 3% while held in the quarter. |
| FRPT | New to the Consumer portion of the portfolio is Freshpet Inc., a producer of fresh refrigerated dog and cat food that is distributed to stores in the U.S., Canada, and Europe. |
| MTDR | Matador Resources Co. is an exploration and production company with operations in the Delaware Basin of Southeast New Mexico and West Texas. Its shares were boosted 18% by a solid fourth quarter with higher-than-expected production volume and lower operating expenses. |
| WHD | Cactus Inc., a manufacturer of wellhead and pressure control equipment used in various stages of energy production, surged ahead by 11%. Fourth quarter revenues and profits outpaced Street estimates. We trimmed the position in recognition that the rig count is expected to be down for the year due to industry consolidation and a weaker natural gas market. |
| SWKS | Shockwave Medical Inc. is a medical device developer of intravascular lithotripsy technology for treating calcified plaque in patients with heart valve diseases. Fourth quarter revenues exceeded estimates on strong coronary sales. Management noted the pre-authorization headwind for peripheral patients has stabilized. Shares of Shockwave rallied 71% on news that Johnson & Johnson is considering an acquisition of the company – that deal was officially announced in the first week of April. |
| ASND | Ascendis Pharma is a biopharmaceutical company engaged in the development of drug candidates. Their Skytrofa drug is commercially available and used to treat growth hormone deficiency in children. Sales of that therapy continue to exceed estimates. Ascendis has also developed TransCon PTH for treating adults with hypoparathyroidism. This is commercially available in Germany and Austria, with U.S. approval expected later this year. The share price of Ascendis Pharma improved by 20% and we trimmed the position on this strength. |
| HQY | HealthEquity Inc. is a provider of technology-enabled platforms for managing health benefits and wellness plans such as health savings and flexible spending accounts. Its shares rose 23% on a better-than-expected sales outlook. Additionally, management expects more than 30% of its health savings account assets to move into their enhanced yield product thereby benefiting custodial revenues. |
| KRYS | Krystal Biotech Inc., a gene therapy company, soared 42% and we trimmed the position. Their fourth quarter sales surpassed Street estimates by a wide margin. Of note, there is now a reduced time for getting approval for Vyjuvek to treat eye lesions in patients suffering from dystrophic epidermolysis bullosa (blistering of skin). |
| RAPT | RAPT Therapeutics Inc. operates as a clinical-stage immunology-based biopharmaceutical company focused on the discovery and development of small molecule therapies for oncology and inflammatory diseases. During the month, the company announced that two studies (atopic dermatitis and asthma) for its zelnecirnon therapy were put on clinical hold following a complication experienced by one dermatitis patient in the study. We decided to liquidate the position on this development, with its shares tumbling -64% for the time it was held this quarter. |
| ATRC | AtriCure Inc. develops and manufactures devices for the surgical ablation of cardiac tissue. Fourth quarter revenues outpaced the consensus with broad-based strength across geographies. Despite these positives, the stock declined -15% on news that another company had launched a product to compete against its AtriClip device; that consideration led to us decrease the position. |
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