American Ingenuity - Q&A With Portfolio Manager Adam Johnson - Adviser Investments
Special Report

American Ingenuity – Q&A With Portfolio Manager Adam Johnson

December 9, 2021

Adam Johnson is portfolio manager of the Adviser Capital American Ingenuity strategy. He targets dynamic U.S. companies across multiple industries, including energy, health care and technology, all with three defining attributes: A compelling story, supportive data and a definable catalyst for growth. He’s the founder of the Bullseye Brief newsletter, which explores actionable stock picks and is sent to subscribers weekly. Previously, Adam anchored several daily programs on Bloomberg Television, interviewing CEOs, heads of state and prominent investors. His earlier trading career spanned over 20 years and included managing proprietary positions in stocks, options and oil at MLH Capital, ING Furman Selz, Louis Dreyfus and Merrill Lynch. Adam graduated from Princeton with a B.A. in economics. He resides in New York City.

WHY “AMERICAN INGENUITY”?

American Ingenuity is a term I use to encapsulate the best of what’s happening—not just in the investment world, but in the real world. It’s more than a stock-picking philosophy; it’s a movement, and that’s what sets this strategy apart. American ingenuity is a major reason why our economy is the largest in the world and why so much progress and innovation happens here. Our entrepreneurism and deep belief in freedom gives companies powerful fuel for growth—and it creates incredible investment opportunities if you know where to look.

WHAT IS YOUR STOCK-SELECTION PROCESS?

I choose stocks based on a thoughtful, thematic process developed over the course of my career: Identify a powerful theme and find the companies that leverage that theme effectively. Specifically, companies that earn their way into my American Ingenuity portfolio have three things in common:

  • A compelling story. This generally means they are doing something that nobody else does—or doing it far better than the rest.
  • Supportive data. Their financials demonstrate excellence and strongly support the possibility of outsized growth. I am a number cruncher and I monitor growth metrics like earnings, margins and cash flow meticulously.
  • A catalyst for growth. American Ingenuity companies are poised to be industry leaders.

WHAT THEMES ARE YOU TARGETING?

Half a dozen themes epitomize the best of American Ingenuity right now, from preventive health care and supercharging immune systems to robotics, automation, energy independence, artificial intelligence and digitization of assets. This could mean creating immersive 3D environments, transporting people in electric aerial taxis, or being on the cusp of receiving FDA approval for a breakthrough lifesaving therapeutic.

The specifics vary, but all American Ingenuity companies reflect a corporate vision, business quality and the potential for significant growth. My job is to identify which companies within these value-creating themes represent the best opportunities for us to build wealth for clients—not just next month or next quarter, but over the next several years and possibly even longer in some cases.

WHAT IS YOUR RISK MANAGEMENT PROCESS AND APPROACH?

Diversification is the single most important factor in managing risk in this portfolio. While the portfolio is concentrated, I diversify across sectors, themes and company size, from small cap to large cap.

Beyond diversification, I set an alert to the downside and a target to the upside. Alerts are typically down 25% to 30%. If a stock falls to my alert, I reevaluate my thesis. Oftentimes, I sell when a stock hits my alert, though if nothing fundamental has changed, I may keep the position. On the upside, when a stock reaches my target, I sell half the position. I may decide to keep the other half, but I honor discipline and sell 50%.

I occasionally raise cash during times of market turbulence, but rarely above 20%. My goal is to stay invested and build long-term value, not time the market or generate short-term gains.

HOW DOES AMERICAN INGENUITY COMPLEMENT OUR CORE PORTFOLIOS?

I believe many—if not most—investors can benefit from allocating a percentage of their portfolio to aggressive growth strategies like this one.

American Ingenuity meets the demand for a growth-oriented, concentrated-equity approach and as such can be an ideal complement to our Dividend Income strategy, for example.

In some ways, American Ingenuity has common ground with PRIMECAP Odyssey Aggressive Growth (POAGX) and Baillie Gifford Long Term Global Growth (BSGLX). In particular, they have a compatible perspective on areas where growth can be found. The BG team also talks about looking for aggressive growth and runs a concentrated portfolio.

HOW IS AMERICAN INGENUITY DIFFERENT?

American Ingenuity tends to buy more small and midsized U.S. companies—this is particularly true compared to Baillie Gifford. I am more active in the portfolio, so turnover is higher. Plus, I focus on the U.S., while the Baillie Gifford fund is global.

The PRIMECAP portfolio has a much “longer tail,” with lots of small positions, whereas American Ingenuity’s portfolio is more concentrated.

Bottom line: I have found different opportunities—bought different companies—than the PRIMECAP and Baillie Gifford teams. If you look at American Ingenuity today, I have three stocks in common with PRIMECAP Odyssey Aggressive Growth and just one stock that overlaps with Baillie Gifford.

WHO SHOULD INVEST IN THE STRATEGY?

Thoughtful long-term investors who embrace innovation and share a view that new technologies can improve our quality of life. This strategy is for any investor looking to add growth exposure to their portfolio based on American Ingenuity’s thematic focus, tactical positioning and emphasis on maximizing return. As with any growth strategy, the size of the position relative to an individual’s overall portfolio iskey. This strategy should be  considered as an allocation within the context of an investor’s balanced equity exposure.

The Adviser Capital American Ingenuity strategy is an aggressive investment strategy and, like all investments is subject to risk of loss. Neither principal nor unrealized gains are insured nor protected against loss. Please consult with your investment professional to determine if this strategy is appropriate for your individual financial circumstances and goals. Although the strategy will generally invest in or consider a range of companies with various market capitalizations, there will often be positions in low-priced equities, including equities of companies with small or extremely small market capitalizations. Relative to other companies with greater market capitalization, stocks of micro-cap (generally less than $300 million in market capitalization) and small-cap (market capitalization generally ranges from $300 million to $2 billion) companies can have high price volatility and price swings, can be subject to fraudulent or manipulative trading, and are at greater risk of bankruptcy and total loss to investors, especially during declining economic conditions and bear markets. The strategy invests in companies in industries subject to varying degrees of regulation, which may also affect profitability and price volatility of investments. Risks addressed are not exhaustive. The strategy is a concentrated portfolio (typically expected to hold securities of 25 to 40 companies, when fully invested); such portfolios tend to be more volatile than more diversified portfolios.

References to specific mutual funds are for informational purposes only, and are not intended as a recommendation to buy, sell or hold the funds mentioned. These mutual funds referenced are aggressive growth equity funds and most appropriate for comparison with the holdings of the Adviser Capital American Ingenuity strategy which is an aggressive growth equities strategy investment. Mutual funds are selected for particular holdings comparison purposes only, and no inference should be made that any of the mutual funds referenced above were profitable or will be profitable, nor should it be assumed that future recommendations will be profitable. Information on overlapping holdings between the Adviser Capital American Ingenuity strategy and the specific mutual funds referenced is as of November 15, 2021. Mutual funds referenced are actively managed and holdings may change at any time without prior notice to Adviser Investments. Likewise, the Adviser Capital American Ingenuity strategy is actively managed, and holdings are subject to change at any time.

Adam Johnson publishes the Bullseye Brief—an impersonal, subscriber-based service—separately from his work at Adviser Capital and Adviser Investments, LLC (collectively “Adviser Investments”). Adviser Investments has no affiliation with the Bullseye Brief publication. No client nor prospective client of Adviser Investments should rely on any information contained on any Bullseye Brief website or social media site in consideration or evaluation of Adviser Investments and/or the Adviser Capital American Ingenuity strategy.

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