sticks with these companies long enough for them to live up to their promise . And if they don ’ t , he ’ ll eventually move on .
Compounders
Barr believes the Aggressive Growth Fund has outperformed because he ’ s able to find “ hidden compounders ,” which he describes as companies making investments today that may see positive financial results beyond the forward-looking time frame of sell-side analysts . Such companies may look expensive in their current financials , he says , but the hope is that over time they ’ ll become “ quality compounders ” generating long-term returns .
He doesn ’ t expect to always hit the mark , yet when he does the winners can greatly aid fund performance . Still , this process can take time .
Take Super Micro Computer , the maker of server and storage systems that was recently the fund ’ s largest equity holding . Barr says the fund initiated its position in the company many years ago at $ 9 a share . He liked it as a play on data centers , which he and his fund ’ s parent , Needham & Company , have long been keen on .
Super Micro ’ s stock was a slow but steady performer before it hit a rough patch in the late 2010s , which Barr says hurt his fund ’ s performance . Then came the mania for artificial intelligence that began in earnest early last year . Investors identified Super Micro ’ s high-performance servers as a beneficiary of the AI boom , and its stock rocketed to more than $ 1,200 a share earlier this year before it dipped to about $ 1,000 by the first quarter ’ s end .
“ The thesis was playing out on an incremental basis for years ,” Barr says . “ It was a 10 % compounder but not on a consistent basis . It crossed from the transition stage to the quality stage about two and half years ago , and now it ’ s off to the races .”
Super Micro exemplifies Barr ’ s patient approach to investing — and explains the fund ’ s low turnover ratio . Or , as he selfdeprecatingly puts it , “ It ’ s tough for me to sell . I ’ m a good buyer and I ’ m a really good holder , but I ’ m not a good seller .”
He says he hits the sell button when his investment thesis for a company goes off
Manager John Barr Age 67
track , and he won ’ t sell a stock just because its valuation has soared . “ We have many ten baggers and above , and I ’ ve had some that reached that level and later retreated ,” Barr says . “ But those who ’ ve made that level are much more prevalent than those that ’ ve made the round trip .”
The fund ’ s success doesn ’ t come cheap , though , and its fee puts it in the most expensive quintile in Morningstar ’ s smallgrowth category . Nonetheless , Morningstar praises the fund ’ s ability to produce positive alpha for its category benchmark .
Qualitative Screen
The Needham Aggressive Growth Fund ’ s stated benchmark is the Russell 2000 Growth Index , but Barr doesn ’ t start in that universe when he ’ s hunting for names . “ I ’ m very happy to find companies that aren ’ t in it yet ,” he notes .
He explains that he and his team get plenty of ideas from industry contacts , as well as people they meet at various industry conferences , including his company ’ s own annual Needham Growth Conference , held in January in New York City .
Professional Background He is co-portfolio manager of the Needham Growth Fund and portfolio manager of the Needham Aggressive Growth Fund .
He started on Wall Street in 1995 at Needham as a sell-side analyst following technical software companies . He rejoined Needham in 2009 to co-manage the Needham Mutual Funds . Between his Needham stints , he worked at other firms as an analyst , portfolio manager and board director . Before he was on Wall Street , he spent 14 years in the electronic design automation industry .
Outside Interests Family , CrossFit training and Berkshire Hathaway . “ I go to the annual meeting every year and have a group of friends I ’ ve met there . I read anything that ’ s written about or by them . It helps explain how I got here .”
Part of Barr ’ s screening process hearkens to Charlie Munger . “ Munger preached the importance of investing in good businesses at a fair price , rather than fair businesses at a good price ,” he says .
“ We have nearly 400 companies presenting there , and our team can see a lot of them . That is a great source of ideas .”
Most of those ideas ultimately don ’ t pass the sniff test . Barr says he was a sellside analyst before becoming a portfolio manager . Before that he sold the computer-aided design ( CAD ) software used in semiconductors and electronic systems design . He says his background has exposed him to a lot of companies , and that Needham ’ s forte in small-cap growth helps him and his team zero in on potential opportunities .
Portfolio Statistics
Number Of Stocks 77 Weighted Avg Mkt Cap
$ 2.02 billion P / E Ratio 21.4x Std . Dev Fund / Benchmark 24.16 / 21.74 Turnover Ratio 7 % Net Expense Ratio 1.58 %
P / E ratio as of 12 / 31 / 23 . Standard deviation ( three-year period ) versus the Morningstar US Small Cap Broad Growth Extended Total Return Index . Expense ratio figures are for the retirement share class because its track record begins in 2001 . The institutional share class began trading in 2016 . Sources : Needham & Company and Morningstar .
46 | FINANCIAL ADVISOR MAGAZINE | MAY 2024 WWW . FA-MAG . COM