Crabtree Asset Management offers portfolio management for investors who seek exposure to growth equities. Our primary product is the Crabtree Fund, a technology-centric, multi-cap growth-equities model portfolio.
The goal of the Crabtree Fund is to outperform the Merrill Lynch Technology 100 Index (MLO) by providing superior risk-adjusted returns over periods of time measured in quarters and years. Crabtree Asset Management clients can invest in the Crabtree Fund via the Crabtree Technology portfolio offered by Covestor, a Registered Investment Adviser based in Boston.
Barry Randall is the Chief Investment Officer of Crabtree Asset Management and the portfolio manager of the Crabtree Fund. He began his professional financial services career in 1993. In 22 years in the financial services business, he has progressed from junior sell-side analyst to award-winning senior portfolio manager, personally responsible for public and private portfolios of as much as $650 million in assets.
Morningstar has rated the Crabtree Technology portfolio Four Stars (out of Five) for Overall, 3-Year and 5-Year performance, for the respective periods ending December 31, 2014. Morningstar compares the risk-adjusted return of our model portfolio to the returns of other technology-focused vehicles and strategies in its Separate Account database.
Our Web Site is designed to educate you about our investment process, strategy and philosophy. But we hope you’ll start by viewing our introductory video below:
March 5, 2015
Today we completed the first quarter re-balancing of the Crabtree Fund.
Sold out of the portfolio were the following positions: Broadcom, Echo Global Logistics, EPAM Systems, Green Dot, Inteliquent, LG Display Co., RigNet, Rofin-Sinar Technologies, inContact, Stantec, Ultra Clean Holdings, and USANA Health Sciences.
These positions were replaced with new 2% positions in Coherent, Changyou.com Ltd., Amdocs, II-VI Inc., Insperity, NeuStar, Nova Measuring Instruments, Perceptron, Quality Systems, Science Applications Intl., Sierra Wireless, and TriNet Group. The first eleven of these new names were sourced from our quantitative screen. TriNet was an exception that we made, because our model wouldn’t have caught its unusual combination of market share and cash generation. Among existing holdings, the only other exceptions are Facebook and Zebra Technologies.
In addition to these sells, we also trimmed three of our holdings back to 2% positions. These included Broadridge Financial, ICON Plc., and Mercury Systems.
We would like to note that selling our position in inContact (ticker: SAAS) was difficult, inasmuch as the company had executed flawlessly for over a year, continued to generate cash and exceed its own and the Street’s expectations. Ironically, however, this very execution did not seem to translate into operational leverage. For example, even though the company reported 41% revenue growth in its Q4, and bookings growth (a rough proxy for future revenue growth was 44%, the company still projected a Non-GAAP loss for 2015.
Something is wrong with your business model when that kind of growth combined with rising gross margins doesn’t result in profits. And it also means that the current shareholder base isn’t owning the stock for profits that will never arrive – they’re only owning it for the price momentum. That’s not Crabtree’s MO, so we’re gone.
December 2, 2014
Today we completed the fourth quarter re-balancing of the Crabtree Fund.
Sold out of the fund were Atlantic Tele-Network, Aspen Technology, Diodes, Electronics for Imaging, EnerNOC, Marvell, MaxLinear, Newport Corp., Insight Enterprises, PAREXEL, R.R. Donnelly, Shutterfly and Trina Solar.
New 2% positions included Advanced Energy Industries, Canadian Solar, Cascade Microtech, FormFactor, IAC/InterActive Corp., LG Display, Methode Electronics, Mercury Systems, Pericom Semiconductor, QLogic, Rogers Corp., Rofin-Sinar Technologies, Spirit AeroSystems and USANA.
Additionally, six names that had grown significantly above a 2% position were trimmed back to that level. These included ARC Document Solutions, Broadcom, Cimpress (formerly known as Vistaprint), Inteliquent, MAXIMUS and Super Micro Computer.
November 3, 2014
Shareholders of the drug development and testing company were offered the equivalent of $105/share in cash and LabCorp stock, a premium over the last closing price. Both companies’ boards have already approved the proposed transaction.
But shares of LabCorp opened lower than that today, closer to $100/share. This was perhaps because of the integration risk of such a large acquisition. So Covance shares were “only” up 25% based on the deal terms. Nonetheless, we sold the shares out of the Crabtree portfolio.
As I’ve written before, we are not risk arbitrageurs at Crabtree; we are long-only investors. And, in my opinion, with a fully mature company like Covance, the chance of a higher offer coming along is low. And with a (partially) stock-based offer, we’re at the mercy of the acquirer’s share price. It was time to sell.
The bid for Covance represents the 17th time that a Crabtree holding has been the subject of a successful takeover offer. The most recent occurrence was on March 28, 2014 when after the close of trading, Nordion (NDZ) got a $11.75 cash offer from Sterigenics, about a 13% premium over that day’s $10.41 close. The offer was subsequently raised to $12.25/share.
October 13, 2014
Two days ago, Bloomberg reported that Silver Lake Partners had “abandoned” an attempt to acquire Shutterfly, as well as competitor Snapfish, a division of Hewlett-Packard. In that story, another unidentified source said that, “Silver Lake was valuing Shutterfly at about 12 times its future earnings before interest, taxes, depreciation and amortization. That implied a purchase price of about $2.57 billion, based on estimates for 2015 EBITDA of $214 million, according to data compiled by Bloomberg.”
The anonymous source’s explicit leak of the valuation is nothing more than a ‘dog whistle’ to the world, meant to alert anyone who cares what Shutterfly turned down: a market cap of $2.57 billion equated to over $66/share. Apparently, Qatalyst Partners wasn’t impressed that Shutterfly had turned down an offer that was 55% higher than the stock had been trading on July 1.
I can say that I certainly wasn’t impressed either. And neither was Mr. Market: SFLY stock fell about $6/share today to close at $41.42. During the time I’ve known Shutterfly’s management, I’ve been impressed with their low-key demeanor and impressive operational execution. If, in fact, they did turn down a huge takeover premium, it would be a black mark against them. But the claim could also be an impulsive swipe by a banker that led the horse to water but couldn’t get it to drink. We’re unlikely to ever know.
It’s unfortunate that a deal didn’t happen. But I have no regrets. Shutterfly, after all, is still generating cash and dominating its space in the Internet-enabled printing sector. There is still time for SFLY to generate alpha for The Crabtree Fund.
September 2, 2014
Today we performed our quarterly re-balance of the Crabtree Technology portfolio. While we typically re-balance in late August, we elected to wait until early September for better market liquidity. We sold the following eight positions: AudioCodes (AUDC), Heartland Payment Systems (HPY), Hexcel (HXL), Mobile TeleSystems OJSC, Netgear (NTGR), Perficient (PRFT), QLogic (QLGC) and Raytheon (RTN).
We purchased eight new positions: Advanced Semiconductor (ASX), Covance (CVD), Camtek (CAMT), ChipMOS Technologies (IMOS), MKS Instruments (MKSI), R. R. Donnelly (RRD), Vistaprint (VPRT) and Zebra Technologies (ZBRA). The first seven of these came, as usual, from our quantitative model that was run in mid-August. Zebra Technologies is, like existing holding Aspen Technology, one of the occasional exceptions that we make to account for high-performing companies that our quant model would typically exclude because of a relatively high profile.
We also trimmed our Echo Global Logistics (ECHO) holding because it had grown materially larger than our standard 2%-of-the-portfolio position. As noted in the comments below, we are watching the news around Crabtree holding Shutterfly quite closely. At this time, it appears several private equity firms have bid for the company, although credible reports suggest that the prices being offered are not quite what SFLY’s board of directors was hoping for. Nonetheless, since the company itself initiated the bidding process, it would be hard for them to turn down a credible cash-based offer. We are monitoring the situation closely and are prepared to act instantly to protect our investment.
August 14, 2014
Thestreet.com reported today that several private equity firms, including TPG Capital and Carlyle Group, have either made private bids to Shutterfly’s board or intend to do so. The source was the obligatory “people familiar with the situation.” (Which as we noted below in our July 2 note, is almost certainly the investment bank Qatalyst Partners, reportedly hired by Shutterfly to shop the company around.)
As we noted in our July 2 note, if Shutterfly is for sale, there is no guarantee a sale will be consummated. And if it is sold, there’s no guarantee it will be at a price higher than it is today, $49.67. But where there is smoke there is fire. Qatalyst is clearly trying to log-roll a deal. And given Shutterfly’s dominant position in its industry and its prodigious cash flow, a deal seems very likely to happen. So we will continue to wait.
July 2, 2014
This morning it was reported by Bloomberg News that Shutterfly (a holding in the Crabtree Fund) has hired an investment bank to seek the possible sale of the company. Shutterfly stock rose roughly 15% on this news. After some consideration, we have elected not to sell our position.
Typically, news of a possible sale like this is leaked by the investment bank or the company itself as a strategy for determining a fair price for the company. Sometimes this occurs when the company being shopped around has attracted no interest, and the investment bank uses this strategy to make sure any potential buyers are aware of the situation. We believe, however, that in this case, Shutterfly has probably attracted some interest, so the leak of the information is being used to home in on an equitable price.
There are no guarantees that Shutterfly will be sold, or that it will be sold at a price higher than the $50/share it reached today. But the company is currently firing on all cylinders, and with its prodigious cash flow and unique business model, would be an accretive acquisition for many suitors. So we plan to wait for now.
May 27, 2014
Today we performed our May quarterly re-balance of the Crabtree Technology portfolio. We sold NIC, Inc., Finisar, Measurement Specialties, Methode, Nordion, Ntelos, Silicon Motion, TurkCell, Take-Two Interactive and Virtusa. We replaced these holdings with new 2% positions in Broadcom, Facebook, ESCO Technologies, Trina Solar, Ultra Clean Holdings, Diodes, Echo Global Logistics, ARC Document Solutions, RadNet and PAREXEL International. We also added to our existing positions in AudioCodes and in Green Dot Corp. and trimmed back to 2% our Insight Enterprises holding.
With the exception of Facebook, all of the new purchases in the fund came from our quantitative model. Nordion was being sold because of its pending acquisition by Sterigenics, as we first discussed in our note on March 28, 2014.
March 28, 2014
After the close of trading today, privately held Sterigenics offered to buy Crabtree holding Nordion (ticker: NDZ) for $11.75/share, a 12% premium from $10.41, the price at which Nordion closed today. Sterigenics is owned by GTCR (“Golder Thoma”) LLC, a well known Chicago-based private equity firm. Sterigenics is a global leader in medical sterilization procedures and is based in Deerfield Illinois.
Nordion’s board of directors has unanimously approved the transaction and strongly urges Nordion shareholders to approve it as well. The offer is an all-cash deal, backed by debt financing and Sterigenics’ cash holdings. We’ll review the transaction further in the coming few days to decide whether to sell our position right away, or hold until closing, which is estimated to be sometime in the second half of calendar 2014. The most likely outcome is that we’ll hold our NDZ stock until our next scheduled re-balance in mid- to late-May, 2014.
February 24, 2014
Today we ran the quarterly re-balancing for Q1 2014.
We sold 11 positions, bought 11 positions to replace them, trimmed six existing holdings that had grown to more than 2.4% of the portfolio, and added to four positions that still qualified for inclusion in portfolio, but which had fallen below 1.6% in size.
Sold from the portfolio were CalAmp, Chinia Telecom, Geeknet, KT, LSI, Motorola Solutions, ReachLocal, Echostar, Spirit AeroSystems, Stamps.com and Telecom Argentina. Our new 2% positions include Broadridge Financial Solutions, Mobile TeleSystems OJSC, Methode Electronics, Newport, Insight Enterprises, Netgear, ON Semiconductor, Raytheon, Super Micro Computer, Stantec and TE Connectivity.
Trimmed back to 2% positions were AudioCodes, Cray, Electronics for Imaging, EnerNOC, EPAM Systems and MaxLinear. Adds included were NTELOS, Sizmek, TurkCell and Verizon.
December 16, 2013
This morning, Crabtree Technology model holding LSI (Ticker: LSI) received a friendly takeover offer from Avago Technologies (Ticker: AVGO). Avago is offering $11.15 in cash, or a 41% premium over LSI’s closing price on Friday, December 13. We are very confident the deal will be consummated at the stated terms because:
– Avago is a well-capitalized and credible semiconductor company;
– The boards of directors of both companies have already approved the terms of the transaction; and
-Avago believes the deal will be “significantly and immediately accretive to its earnings.
Consistent with our disciplined process, we will likely sell our LSI holdings before the next re-balancing in February 2014 and replace it with a 2% position chosen from our quantitative model.
This marks the 15th time a Crabtree Technology model holding has been the subject of a takeover offer since the model’s inception on March 31, 2009. Most recently, The Active Network Company (ACTV) agreed on September 30, 2013 to be acquired by private-equity firm Vista Equity Partners for about $1.05 billion, or $14.50/share in cash.
November 25, 2013
We completed the fourth quarter re-balancing of the Crabtree Fund today.
We sold fourteen positions, bought fifteen new ones, trimmed five holdings and added to three existing holdings.
Sold were Ambarella, America Movil, Anika Therapeutics, Aeroflex, Cambrex, Cynosure, Jiayuan.com International, eHealth, Himax Technologies, M/A-Com Technology Solution Holdings, MagnaChip Semiconductor, Simcere Pharmaceutical, Silicon Graphics and TE Connectivity.
Brand new 2% positions included Marvell Technology, Brocade, QLogic, Finisar, Silicon Motion, Motorola Solutions, , NTELOS Holdings, China Telecom, TakeTwo Interactive, XO Group, KT Corp., Atlantic Tele-Network, ShoreTel, Geeknet and Aspen Technology. All of the new positions, except Aspen Technology, came from our quantitative model.
Trimmed back to 2% positions were CalAmp, Euronet Worldwide, Hexcel, Inteliquent and RigNet.
Raised back to 2% positions were AudioCodes, Catamaran and EnerNOC.
Our mid-November quantitative model yielded 100 candidates, down from 122 when we ran the model in mid-August. This was in-line with expectations considering the recent market-wide price appreciation.
Our valuation parameter is excluding more candidates because the apprciation hasn’t been accompanied, in general, but an increase in operational and share-gain performance. None of this is predictive of the market in general and shouldn’t be interpreted as such.
November 1, 2013
Today we sold our position in The Active Network (ACTV). On September 30, the company, which manages online registration for marathons, business conferences and other events, agreed to be acquired by private-equity firm Vista Equity Partners for about $1.05 billion, or $14.50/share in cash. At the time, this price represented a 27% premium over the closing price on Sept. 27, the most recent trading day. Active’s board endorsed the offer, recommending that all stockholders tender their shares.
This represents the 14th time since the inception of the Crabtree Fund that one of our positions has received a takeover offer. Except in a few instances, we typically sell our shares, rather than wait until deal closure to dispose of the position. After all, we’re equity investment managers, not risk arbitrageurs, so there’s no need to wait around for a marginal improvement in price, at the risk of the deal coming apart and the stock price falling back to its pre-offer level, or worse.
So adieu, Active Network, and we thank you!
August 26, 2013
We completed the third quarter re-balancing of the Crabtree Fund today.
We sold nine positions, bought nine new ones and trimmed six other holdings.
Sold were Audience, American Public Education, Cerner, Demand Media, DSP Group, GenCorp, PhotoMedix, Tetra Technologies and VimpelCom.
Brand new 2% positions included AudioCodes, Digital Generation, Perficient, Turkcell, Inteliquent, Nordion, Stantec, American Movil and The Active Network. All of the new names came from our quantitative model.
Trimmed back to 2% positions were Anika Therapeutics, Cray, eHealth, EPAM Systems, Green Dot and Stamps.com.
Our mid-August quantitative model yielded 122 candidates. This was unusually high for a period of time near a market high. Typically, our “fame” or valuation paramter will exclude a lot of candidates near a market high. In this case, it has been offset by an unusually large number of candidates exceeding our “execution” parameters. This is a testament to how well so many public companies are performing in 2013.