Laura Lallos, Morningstar magazine’s managing editor, interviewed Greenberg in April.
1. What distinguishes your approach to small-cap growth?
We have stocks in Baron Small Cap Fund that we have owned for over 10 years, and about half of our investments are in stocks we have held more than five years. A number of these are “big winners” that have driven our performance. We seek to replicate these successes with a handful of new investments each year.
2. How has your strategy evolved over your career?
I increasingly favor high-quality businesses that are leaders in their niches, have significant barriers to competition, have strong growth opportunities, and are well-managed. We seek to buy them at reasonable multiples and make our returns as the companies grow. I used to focus more on bargain or undiscovered stocks, but I found myself missing out on great growth companies or selling too early.
3. How are valuations in your opportunity set?
Valuations are a bit higher than in the recent past but justified in our mind because interest rates are still modest, inflation is in check, and near-term growth rates are better than in recent years.
4. Where are you finding the best opportunities?
We build the portfolio from the bottom up, but the fund is most heavily weighted in information technology and industrials. I primarily own software companies that provide digital operating systems for businesses, such as Guidewire Software (GWRE), 2U (TWOU), and Aspen Technology (AZPN). My industrials holdings are an eclectic group of niche growth businesses, including SiteOne Landscape Supply (SITE) and John Bean Technologies (JBT).
5. Is competition from Amazon.com (AMZN) steering you from or toward certain areas?
Our ownership of consumer discretionary stocks is way down from years ago, and that started even before Amazon was wreaking havoc. But we do own some retailers that we believe are immune, that we were able to buy at cheap valuations because so many retail stocks have been out of favor. A new investment that fits this bill is Hudson (HUD), which operates stores in airports. Our primary holdings in the sector are niche service businesses such as Bright Horizons Family Solutions (BFAM), which provides corporate-sponsored child care.
6. What’s the best investment advice you’ve received?
“Water your flowers and cut your weeds.” This is my portfolio management mantra.
7. Where would you be working now, if not within financial services?
It would have been fun to be a concert promoter, like my son, or the general manager of my beloved Green Bay Packers.
8. What do you enjoy doing when you aren’t investing?
Watching sports and playing golf, going to rock concerts, and being with my fantastic family— wife Alyssa, sons Josh and Mikey, and daughter Jamie—and friends.
9. What are you recommending to friends these days?
For fellow music lovers, Joe Russo’s Almost Dead. JRAD brings incredible energy to the music of the Grateful Dead.
10. What is one of your favorite charities?
Brothers for Life, an organization run by disabled Israeli combat soldiers that enables injured soldiers to return to productive lives. My wife and I are hosting a delegation in New York for a week of great events and bonding.
Cliff Greenberg is a senior vice president and portfolio manager at Baron Capital and one of the longest-tenured members of Baron’s investment team. He joined the firm in 1997 and since then has managed Baron Small Cap Fund BSCFX, which has a Morningstar Analyst Rating of Silver. From 1984 to 1996, Greenberg worked at HPB Associates as a securities analyst and fund manager and was named general partner in 1991. He has a B.A. from Cornell University and a J.D. from Columbia Law School.
This article originally appeared in the June/July 2018 issue of Morningstar magazine. To learn more about Morningstar magazine, please visit our corporate website.
Laura Lallos does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.