An opportunity to add franchises

Many people misunderstand the investment case for Dunkin’, associating the company with its doughnuts and its omnipresence in the Northeast, particularly New England. Christopher J. Bonavico, of the Jackson Square SMID-Cap Growth Fund, said. Its promise instead lies in caffeinated beverages and in the company’s potential for growth in the rest of the United States.

“Coffee is the major driver — it’s a daily purchase, it’s habitforming, and it’s got a 90 per cent margin,” he said. “And there’s an enormous opportunity for them to add franchisees west of the Mississippi.”

Wix, for its part, is known as a website builder for small businesses. Bonavico said he and Broad believe the company has a better strategy than competitors like Squarespace and GoDaddy.

“Wix has zero salespeople — they compete only on the quality of the product,” he said. “And they’re the only one using the freemium model.” Wix customers can pay nothing for basic service or pay up for more features.

The Jackson Square fund officially began in 2016, two years after Bonavico and Broad and several colleagues formed their own firm, Jackson Square Partners. Bonavico and Broad previously managed the Delaware Smid Cap Growth fund, starting in 2005 and continuing through 2016.

Jackson Square Partners is also an adviser to the Vanguard US Growth Fund, a large-cap offering. In the first quarter, the Jackson Square SMID-Cap Growth Fund returned 8.73 per cent. Its investor shares carry a net expense ratio of 1.23 per cent. to its fundamentals. That led him to a stock that some investors might dismiss as a laggard — Microsoft. Lippert said Microsoft’s chief executive, Satya Nadella, who took over in 2014, has reoriented the company by focusing on cloud computing and artificial intelligence.

“Microsoft used to just sell you Office,” he said. Today, thanks to its software-as-aservice approach, the company knows how customers are using its products and can continuously update and personalise them.

Another of his top holdings, Tesla, has lately stumbled. The company fell behind on the production of its latest electric car, the Model 3, and was punished with a sliding share price for much of the first quarter. Lippert said he saw the company’s woes as more of a stall than a breakdown.

Tesla is trying to optimise and control every phase of its electric-car production, he said, and that’s both potentially revolutionary and extremely challenging, Lippert said. “People understand that, but they aren’t room to do it.”

Lippert’s fund, with an expense ratio of 1.41 per cent for its retail shares, returned 9.2 per cent in the first quarter. giving them

Bulking up with Brazil

Growth also matters to Will R. Pruett, manager of the Fidelity Latin America Fund. But for him, it can be the expansion of national economies, not of corporate earnings, that ends up determining his fund’s fate. He hunts mainly in some of the emerging economies of North and South America — Brazil, Mexico, Colombia, Chile and Peru. While Pruett says he is a bottom-up stock picker, his portfolio can be buffeted by the political and economic vagaries of volatile regions.

Lately, he has found value in Brazil, wagering nearly a fifth of the fund’s assets on two affiliated companies — Itausa, a Brazilian conglomerate doing everything from banking to manufacturing, and Itau Unibanco Holding, a financial subsidiary of Itausa.

“What’s interesting about

Criminal conviction

Brazil, a major oil producer, had been sapped by low oil prices and walloped by a political scandal that originated with its state-owned oil company, Petrobras. The upheaval culminated with the criminal conviction of a former president and the impeachment of his successor. Pruett said the scandal has been painful but “the institutions in Brazil are working and are going to be a lot stronger coming out of this.” Brazil’s economy is one of the world’s largest, and its stocks represent about 60 per cent of the leading Latin America benchmark index — MSCI Emerging Markets Latin America. Throughout Latin America, Pruett said, banks tend to be family controlled and operated, which typically aligns their interests with those of outside shareholders. On top of that, “Markets are concentrated, and the penetration of financial services is low,” he said.

Consider Peru, home to one of his top holdings, Credicorp, a major bank in a country with 31 million people and an economy growing at 6 per cent a year. It is one of four banks that dominate the country’s financial system.

“They each have about a quarter of the market,” Pruett said. “Margins are high.”

Investors have noticed, pushing Credicorp’s stock up nearly 50 per cent over the last year. “The banks in Latin America are long-term winners.”

Pruett’s fund, with an expense ratio of 1.09 per cent, returned 10.5 per cent in the first quarter.