Matthew DeCicco, Director of Equities, Portfolio Manager, Lord Abbett & Co.
Matthew DeCicco, CFA, is Director of Equities and a Portfolio Manager for Lord Abbett & Co. He is responsible for directing Lord Abbett’s equity investment activities, including portfolio management and equity research.
He also is a Portfolio Manager on the Innovation Growth Equity team and is responsible for contributing to the management of the firm’s growth equity strategies.
In addition, Mr. DeCicco co-chairs the firm’s Partnership Committee and serves on the firm’s Investment and Management Committees.
Mr. DeCicco joined Lord Abbett in 1999 and was named Partner in 2020.
Prior to his current role, he served as a Research Analyst and later a Portfolio Manager for Innovation Growth strategies.
He has worked in the financial services industry since 1999.
Mr. DeCicco earned a B.S. in business administration and economics from the University of Richmond’s Robins School of Business and an M.S. in biotechnology from Johns Hopkins University.
He also is a holder of the Chartered Financial Analyst (CFA) designation.
His investment philosophy powers the high growth stock winners at Lord Abbett.
“We invest in high-growth innovative companies.
I tend to say this line every time I meet with one of our clients or potential clients: The reason we do that is because we think the potential of innovative companies is systematically underappreciated by the market.
We see it time and time again, and we think it’s because the market underestimates the magnitude and duration of these truly disruptive companies.
There’s a view that, because of the law of large numbers, this level of growth can’t continue in the future.
What we try to do is arbitrage the value that is earned through the power of compounding with the value that is perceived in the stock at current prices.
And that sounds great, but we have this process that we’ve had in place for over 20 years that’s really purpose-built to specifically identify these disruptive companies, with the idea that if we find them early enough, we can drive meaningful share price appreciation.
Our process mixes both qualitative and quantitative elements, and it’s really three steps.
The first step is very much about us evaluating the quality of the business, and so this is a qualitative assessment by our team of analysts and portfolio managers that focuses on four key attributes.
First and foremost, it’s the business model itself. How scalable is the business model?
How visible are the revenues and earnings?
Is the business asset light?
The second thing we spend a lot of time on is management.
Again, we have a team of analysts and portfolio managers who are out meeting with companies hundreds of times a year, listening to earnings conference calls.
First and foremost, it’s important that these management teams are competent and credible, but mostly that they do what they say they’re going to do.
We do like founders.
We also like people who we’ve worked with before, who we’ve invested with before, so we love it when we find a company that has a CEO who maybe started a business prior that we invested with, had a successful experience, and they’re starting something new.
So, the second attribute in the qualitative assessment is really around the management team itself.
Third is the competitive advantage.
You’ve got a company that you love today, it’s generating great revenues and earnings today; what is it about the company that leads you to believe that that is sustainable three, five, seven years into the future?
Competitive advantage could come in the form of intellectual property, it could come in the form of a really good product pipeline, it could come in the form of some sort of manufacturing expertise, but something that differentiates the company competitively.
And then last but not least, we pay attention to the industry conditions in which the company is operating.
An example that is good to bring this to light: Say in the last three years you found a great company in the housing industry, maybe it’s a tech-enabled way to disrupt the way houses are bought and sold.
Well, that’s great, except the housing industry’s been in a difficult stretch for the last three years.
You’ve had rates go up, and now in the last year or so, for lack of a better term, you’ve had affordability concerns that have suppressed the health of the housing market.
So, you could have a great company but the industry conditions aren’t as favorable.
We love when we find a good company with the attributes I mentioned that’s also in an industry that’s very healthy.
That’s just the first step, which is very much a qualitative assessment, and that is our way of identifying what a company’s potential is.
We think of that first step as very much, OK, does this company have the raw ingredients to become much bigger in the future?
Potential alone, though, is not enough.
So, our second step, which we call operating momentum, is a measure of if a company’s realizing its potential. This is very quantitative — you can look at a lot of figures to determine this — and it’s very much fundamental analysis that is purpose-built for looking at high-growth companies.
What I mean by that is, if you’re a value investor, you might look at things like price-to-book, or pay a lot of attention to the normalized free cash flow yield.
We think that works very well in a certain universe of stocks.
But if you’re looking at high-growth stocks, you have to use a very different set of fundamental metrics, and it could vary by industry.
Some of those things are obvious things, like what’s the revenue growth and what’s the earnings growth?
Also things like, how high are the gross margins?
A high gross margin company typically means that they are extracting a lot of value for whatever service or product they’re delivering.
What’s the size of the total addressable market?
How penetrated is the company in the total addressable market?
Is the company executing quarter in, quarter out, better than expectations?
Do they have a key product, and how is that key product doing versus expectations?
These are very quantifiable things that we can measure each and every quarter, things that we can track when we’re meeting with the companies that we invest in.
Again, think of it as, OK, we’ve got a company with great potential from that first step; is it actually realizing that potential with good operating results each and every quarter?
And then, last but not least, the third step in our investment process is an analysis of the company’s price momentum.
You can think of this as our assessment of recognition.
So, if we’ve got a great company with great potential, and it’s realizing that potential through very good results, we want to see if it is being recognized by the market.
Does anyone else care?
Again, this is something that we can measure very quantitatively, and we look at it through two different lenses.
The first is absolute price momentum, which is just how the stock’s doing compared to its own history. And the second is relative price momentum, which is how the stock is doing compared to all other stocks.
We can rank not only the stocks in our portfolio with these metrics, but also every stock in our investment universe.
You can think of our investment process as a Venn diagram, and you can think of our portfolio as really built at the center of the Venn diagram of these three process steps, where the companies that have the most potential, that are realizing that potential, where it’s being recognized by the market with good price momentum — those companies earn the most capital in our portfolio.
I would say by the nature of what we’re looking for, these very high-growth companies, 80% of what we do ends up in fields related to technology, health care, consumer, and communications.”
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