Morningstar - Q3 2022 - 64

Investors
Nicholas Partners Small Cap Growth
NPSGX
Growth of $10K
$25K
NPSGX
20
Morningstar US
Small Growth
07/2019
07/2020
Morningstar Category
Morningstar Rating
Expense Ratio (%)
07/2021
Small Growth
QQQQ
0.99
Source: Morningstar Direct. Data as of 06/30/2022.
Lisa Wheatley, who joined in 2014 and is now a
partner in the firm, had previously run mergers and
acquisitions for a large public life sciences
company. " When we sold the company, I came
to Catherine, " she says, noting that she
had known Nicholas since befriending her
stepdaughter as a teenager. " I'd always looked up
to Catherine as a mentor. There were very
few powerful females in the business that had
risen to the ranks that she had. "
Wheatley says her previous experience
integrating businesses provides insight into the
companies she invests in today: " A lot of
the time when things went wrong, it wasn't that
the drug or technology was bad; it was a
result of poor execution of the business.
Having that kind of real-world experience in how
a public company actually operates brings a
completely different perspective when
I hear of something going awry at a particular
company we are invested in. "
Wheatley grew up in San Diego and wanted
to stay in the city where she and her husband and
two children were established. She says the
64
Morningstar Q3 2022
After earning an engineering degree in India, Garg
moved to Silicon Valley and started a career in the
semiconductor industry. She eventually decided to
transition into investing: " Over drinks and dinners
with my friends in equity research, it sounded
much more exciting than what I was doing, and
given my background in technology, I could
provide a differentiated view on the research side. "
Garg moved with her husband and daughter to
get an MBA at the University of Chicago and
returned to the West Coast to work as an analyst
at a sell-side boutique where Nicholas
Investment Partners was a client. When Nicholas'
original tech analyst left for family reasons,
Garg was eager to fill the opening.
" For me, working in a woman-led firm was very
important, " she says. " And I knew that the way we
look at investments aligned well. "
Garg still works from San Francisco in order
to be in the center of the action: " I feel that if you
do tech investing or tech research, you
have to be in the valley, in the middle of where
everything happens. "
Collaborative Effort
Whether from San Diego, San Francisco,
or Douglas, Wyoming-where Art Nicholas runs
13.29
9.96
15
10
5
location is also an advantage because San Diego
is a biotech hub.
In addition to working on the small-cap growth
strategy, Wheatley runs NicHealth, a healthcare
strategy available to institutional investors.
" In mid-December 2016, healthcare had really
pulled back, and I went to Catherine and
said I think there's a huge opportunity to invest
in the space, not just for a couple of years
but 10 or 20, " she says. " She was so supportive-
the fund was up and running by Jan. 1. "
Says Nicholas, " If you want to keep good people,
you need to provide a growth path for their career. "
Technology specialist Monika Garg joined the firm
in 2019 with the understanding that she'd head
up a tech fund of her own if things went
well-and NicTech was launched in early 2020.
a working ranch-the team meets weekly
about the small-cap growth strategy. They review
the portfolio's holdings and risk, guided by
a quantitative research model developed for the
small-cap space at Nicholas-Applegate
and updated over the years. " We've been
able to see how the markets and inefficiencies
change, " Nicholas says, " and we've adapted
to that change. "
As Wylie says, " It's a multifactor model, each one
representing a leg of the stool of our investment
philosophy: How do you identify quantitative
acceleration of growth, how do you identify quality,
and how do you identify attractive valuation and
timeliness of investment? There are multiple
signals, but they're aggregated up in those three
buckets, and each company gets a composite
score based upon all three of those combined. "
The model-which is maintained by head
trader and director of quantitative analytics Alex
Reison-ranks a universe of about 2,500
small-cap companies. It provides a fresh lens on
current holdings and suggests prospects
for further research. Garg takes the lead on tech
names, Wheatley heads up healthcare, and
Nicholas and Wylie divvy up the rest. The portfolio
manager who does the due diligence
presents their research to the team, and Nicholas
makes the final decision.
Now may not seem like the best time to be
a small-cap growth investor-the category is
down more than 30% for the year to date through
June, as is this fund. Wylie is philosophical:
" Everybody's stock prices are going down, but the
best companies will manage through and come
out the other side, stronger. "
Nicholas is setting her sights on the long-term
possibility: " Rough patches in the market
are where the opportunity is, like after 2008-09,
or 1987. We've been through a lot of these
crashes, John and I, " she says. " When it feels the
darkest, sometimes that's when you can generate
the most alpha. " K
Laura Lallos is managing editor of Morningstar magazine.
Photography by Samantha Zauscher.
Morningstar - Q3 2022

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