Lauri Brunner is a self-described mall rat who spends her idle hours touring America’s retail outlets in search of trends, customer traffic, and buying activity.
“Over the years, I’ve visited thousands of stores,” said Brunner, the senior portfolio manager of Thrivent Large Cap Growth Fund (THLCX). “And as I walk through a store, I’m constantly counting and tabulating – how many people are at the front of the store, how many are at the registers, how many people are working the register, how deep are the lines.”
Ironically, however, Brunner is no fan of the retail sector. In fact, when she came to Thrivent as an analyst in 2007, her first recommendation was to dump their brick-and-mortar retail holdings.
“I said, ‘sell everything you’ve got within the retail sector because there are too many stores in the U.S. Everything’s full, sales are slowing, inventory is too high, and we don’t need companies to build any more stores.’ I suggested we only invest in retailers that stopped store growth and focused instead on operations – better stores, not more stores.”
But there was one retailer she pushed persistently – Amazon.com. “I don’t know if I will find another company that I admire as much as Amazon. I think it’s truly a unique company. Once you recognize a company of that caliber and potential – and certainly revenue growth potential – a company that is participating in multiple very large industries, you invest and stay invested, and you don’t let anything distract you.”
Since Thrivent made its first purchase of Amazon on July 24, 2007, the stock price has increased by 4,139% through March 2, 2022. At the same time, the brick-and-mortar retail sector has been one of the worst performing segments of the U.S. stock market.
Swim your own race
After Brunner was promoted from retail analyst to portfolio manager of Thrivent Large Cap Growth Fund in 2018, she leaned heavily on a guiding philosophy that was first suggested to her by her high school swimming coach: “Swim your own race.”
“I’ve always thought about that principle through the years and what it means to go out and do what you’re trained to do. Act on your principles and invest your way rather than focusing on the competition and what’s happening around you. Continue to dig deeper on the concepts you know.”
With only about 40 holdings in her large cap fund, Brunner has had the luxury of being very selective. “We have the opportunity to go deep on names and conduct extensive research on companies. We know our companies from top to bottom and bottom to top. So, we have the confidence to take large active bets on the companies we like.”
Brunner spends most of her time focusing on the mega-cap companies – those that are about $1 trillion in value or more. “We have two touch points with our analysts, names we own and new ideas. We want to understand what’s driving companies, what’s driving revenue growth, what’s changing, what divisions are leading the growth, and which ones are contributors to growth.”
Head in the cloud
Brunner is particularly interested in companies involved in cloud technology, including Amazon, Google (now called Alphabet) and Microsoft. “The common theme for those names is a shift to the cloud,” she explained. “Globally, that has represented a multi-decade shift in I.T. spending. We are in the second decade of that shift. Not only does this involve outsourcing to cloud providers, but it also involves software running the business that is being modernized and updated, which is also supported by the cloud.
“The companies providing the backbone in this cloud service – Amazon, Google and Microsoft – have years of double-digit revenue growth ahead of them,” she added. “And that’s, in part, why we’re optimistic about large cap growth companies.”
Two other names that also captured her attention in recent years were NVIDIA, a large semiconductor manufacturer, and Live Nation, an entertainment company. “We bought Live Nation during the COVID-19 downdraft in early 2020. It is a vertically integrated live music company. Musicians can hire them to plan their tour or to promote their concerts. In terms of distribution of live events, they own Ticketmaster, so Live Nation has a couple of bites at the apple in the live entertainment business.
“The focus of this company is on spending on experiences rather than things – and it’s spending that’s done at the local level,” she added. While Live Nation suffered during the pandemic, Brunner believes there is better profitability ahead for the company. “They took some time during the pandemic to digitize some of their processes and slimmed down some of their operating costs. So as the economy reopens, we think Live Nation could be a multi-year winner for the fund.”
Gauging future growth
In selecting stocks for the portfolio, Brunner considers a factor known as “target addressable marketplaces” (TAM). “What we try to determine is ‘how big is the sandbox where the company is building its business?’ That helps us frame how long the revenue growth runway is for a company. For Amazon, we determined early on that the revenue growth runway was going to be a multi-decade event.”
She saw a similar growth horizon for Apple. “We’re at the half decade point and hoping it can be a full decade of growth of revenues above the market.”
Brunner not only takes into consideration the current operations of a company, but also its future expansion potential. “How could the company launch initiatives that would help them pursue a larger marketplace?”
While her sell strategy is a work in progress, it often boils down to determining which stocks would be the best to unload when she finds promising new names to add to the fund. One factor that comes into play is risk metrics. “As we add new names to the fund, the risk metrics may change. If we’re in a position where we have names that we consider risk diversifiers and we want to add more risk to the fund, we may sell some other names.”
Brunner believes the biggest risk to the large cap growth market occurs when companies across the board are experiencing solid earnings or revenue growth. “When investors can find growth everywhere, you could argue that we’re in a market geared to value investors, and that can be a risk to the large cap growth category. We tend to do best when growth – especially revenue growth – is scarce for large cap companies.”
It's times like those when Brunner is willing to shop around to add a few value stocks to her growth stock fund. And shopping for bargains is something Brunner knows a thing or two about.
To learn more, see Thrivent Large Cap Growth Fund.
