Rob Goldman founded Goldman Small Cap Research (GSCR)--not affiliated with Goldman Sachs--in 2009. He has over 20 years of investment and research experience as a senior research analyst and as a portfolio and mutual fund manager.
During his tenure as a sell-side analyst, he was a senior member of Piper Jaffray's Technology team. Prior to joining Piper, he led Josephthal & Co.'s Emerging Growth Research Group. He has also served as chief investment officer of two boutique investment management firms, where he managed Small Cap Growth and Balanced portfolios.
Goldman spoke with MME about tech, European and healthcare opportunities.
How do you work with mutual fund and ETF providers? Why/how is your company relevant to them?
The market is more technically driven right now. We are able to identify trends in the market, individual sector and stock rotation earlier than most, albeit sometimes a bit too early in the cycle, which investment pros find very beneficial. Moreover, those mutual funds and hedge funds that are seeking trading ideas really like our 30-30 Report, which identifies stocks we believe will rise 30% in 30 days. Our track record has been very good, with roughly half of the stocks reaching the 30% mark in 45 days or less and then making even greater long-term gains.
As a boutique research-based firm catering to individuals, financial advisors and fund managers, we have been working on a new product that is essentially an ETF-based portfolio that includes investment classes and sector rotation by using industry-specific ETFs. The philosophy is a core and satellite approach based on an innovative investment and trading that I designed at an RIA firm a number of years ago.
While the product is in the design phase we have been tracking the correlation between valuation, performance and money flows of ETFs that sit in specific asset classes (Large, Small Cap Growth, etc.) and the same correlations between many sector-based ETFs as well. Moreover, we closely monitor the underlying indices associated with the more narrow sector ETFs in anticipation of rotations into these sectors, along with any potential shift in index composition. Through our own due diligence and ranking process, we rank and then weight sample risk tolerance based-ETF portfolios, accordingly.
Once we complete back-testing we will release the product. Fund and ETF managers will be able to use these portfolios as both a tool to spot trends in active management of ETFs and as quasi-benchmarks.
What are the top three latest, most noteworthy pieces of information to come out of your research firm? Why is it relevant to such fund managers?
One trend that we've identified is the uptrend in the mobile and wireless space and associated spiral in the traditional computing world. Important IPOs have occurred in the last couple of months, which illustrates the growing use of mobile devices now outpacing PCs for web access and all computing devices surpassing the use of TVs for traditional television-watching.
With breakthroughs in technology applications both in the business and consumer worlds, and how we approach and utilize social media in our daily lives, it is clear that technology begins and ends with how it is utilized wirelessly. Even stodgy, slow to change industries such as real estate have embraced the use of mobile apps and devices to jump start sales and perform CRM functions to increase productivity.
There's also a lot of opportunity coming from Europe. The continent has emerged from a crisis in better shape than anticipated and GDP growth is increasing while valuations for the stocks there remain pretty attractive, despite the high unemployment rates. Industrial companies and select consumer stocks appear to be the most attractive today. Managers that do not have stocks with exposure to the European economy or own European stocks may be disappointed in their returns.
The healthcare space is another important area. Whether Obamacare is repealed or modified, it remains an important part of everyone's portfolio. We believe that the biotech space offers the best risk/reward today. With many drugs coming off-patent for Big Pharma and their inability to produce a strong pipeline of drugs that can get approved, particularly in oncology and chronic disease areas such as diabetes, we see more M&A by big firms. As a result, companies in the mid-late stages of their development may be ripe for the picking.
How is technology heating up again and how should fund managers take advantage of it?
The speed of information is much faster. Consumers want information. The way they want to receive it is in their hands-on a mobile phone, or tablet primarily. While we've had the rise of the mobile market we've seen the decline of PC. On the software side, there are more and more applications for mobile and network security. Security is more important than ever. We see that fund managers should overweight their portfolios in the tech side. They need good exposure in the healthcare area. M & A opportunities abound.
We have been in an odd market where no one seems to care about valuations of stocks at all. They are merely buying whatever is under accumulation in a herd mentality. That is fine for the short term, but we believe that the forgotten technology growth companies that trade at favorable valuations will be the next group to move higher as institutions take profits on the high-flyers in Q4.
Should they be fearful of a bubble in tech?
I think fund managers should be and are fearful of a bubble period. At some point in time, there definitely is cause for concern in the sustainability of the global market.
Buying companies at favorable valuations relative to current multiples may soften the blow if and when it comes.
Internationally, where do you see the best prospects for fund managers? Why?
We like emerging markets in Europe, specifically Slovakia and Poland. China is always a big play risk with currency.
We like Europe because of the favorable upturns in GDP and consumer spending even though unemployment is still a big issue. Despite geo-political concerns, anyone that has an interest in tech or healthcare should consider turning east to Israeli stocks traded in the States. Many trade at lower valuations than their U.S.-domiciled peers.