8/7/2019 Markets Are Rewarding Companies with Superior Acceleration

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CIO InsIghts

©2011 American Century Proprietary Holdings, Inc. All rights reserved.

FIRST QuaRTeR 2011

Non-FDIC Insrd • My Los Vl • No Bnk G

David hollod

Chie Investment OcerU.S. Growth Equity – Mid &Small Cap

“One o the most interesting

things about the current market

is we are seeing acceleration

among very dierent kinds o

companies, ranging rom secular

growth to deensive and even

cyclical companies.”

Fundamental acceleration as an investment characteristic is being rewarded by themarket and helping distinguish which companies will outperorm and generate positiveexcess returns (or alpha).

are being put back into service, while olderplanes are being reurbished to extendtheir service lives. In developing markets,demand or new aircrat is also drivingits revenue and prot growth. Althoughthe global economy remains sot in manyparts o the world—especially here in the

U.S.—BE Aerospace is experiencing strongacceleration in its business undamentals.

Two examples o deensive companiesthat continue to demonstrate signs oacceleration are Dollar Tree and O’ReillyAuto Parts. One might think that as theeconomy slowly recovers these companieswould be struggling simply to generateearnings growth. However, both are doingwell because o the continuing challenge ohigh unemployment in the U.S. and the needby many people to economize. Furthermore,

deensive companies are beneting not justrom the high unemployment level, but alsorom employed people looking to reducedebt burdens or increase savings in a labormarket where raises are very limited. Thistype o consumer behavior has helped evendeensive companies generate earningsacceleration in a slowly improving economy.

Eaci Diverifcaio

Given this mix o types o companiesexhibiting acceleration, we have constructedour portolios to provide investors with

a blend o each type. This providesdiversication based on the source oacceleration (secular, cyclical, deensive),which we believe is important to our riskmanagement process. In summary, ourproven investment process, which ocuseson acceleration in revenues and earnings, isproviding a wide opportunity set o attractiveinvestment candidates. From these, we areselecting companies we believe oer thebest expected opportunities or total returnand eective diversication.

Poiive tred Coiue

The positive trends I discussed in theprevious two quarters’ CIO Insights havecontinued or even improved in the ourthquarter. Most importantly, companiesexhibiting acceleration are being rewardedby the market. Investors are usingacceleration as a measure to distinguishbetween companies and to reward thoseexhibiting sustainable and superioracceleration characteristics—that is, thosecompanies showing the most improvement.This is also the ocus o our investmentprocess, which is based on revenue andearnings acceleration in addition to theundamental actors that contribute to these.

Acceleraio Acro May type

o Compaie

One o the most interesting things aboutthe current market is we are seeingacceleration among dierent kinds ocompanies, ranging rom secular growthto deensive and even cyclical companies.One example o a secular growth companywith accelerating business trends is Netfix,which is currently shiting its businessmodel toward streaming video over theinternet. With this change, it is seeing alarge increase in subscribers resulting insubstantial revenue acceleration. Their valueproposition (watch as many movies as youlike per month or a fat ee) is also veryattractive relative to the cable TV pay-per-view model.

An example o a cyclical company showingimpressive acceleration is BE Aerospace.Its business is supplying interiors andreplacement parts or commercial andprivate airplanes. BE Aerospace sells intoboth the new build and the reurbishmentmarkets. At the moment, it is benetingrom growth in demand or global air travel.In developed markets, mothballed planes

Mrkts ar Rwrding Compnis with

Sprior acclrtion

IN-FLY-70274 1101

The opinions expressed are those o David Holland are no guarantee o the uture perormanceo any American Century Investments portolio.Statements regarding specifc holdings represen personal views and compensation has not beenreceived in connection with such views. Historicsmall- and mid-cap stocks have been morevolatile than the stocks o larger, more establishcompanies.

For educational use only. This inormation is notintended to serve as investment advice.