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Jan. 11, 2021, 10:19 a.m. EST

This fund manager says Amazon and other large-cap tech companies will make lots of money for investors for years to come

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By Philip van Doorn

Scott Berg’s T. Rowe Price Global Growth Stock Fund last year more than doubled the return of the S&P 500 Index and did even better against its benchmark by betting on large-cap technology companies and next-generation disruptors.

In an interview, Berg, who joined T. Rowe Price as an analyst in 2002, explained his investment philosophy and why some stocks that have been called “too expensive” by investors over the years have actually been reasonably priced. Massive gains are sustainable, he said, because of double-digit increases in revenue.

Some of the $1.3 billion mutual fund’s top holdings are Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN +0.77% , Google holding company Alphabet Inc. /zigman2/quotes/205453964/composite GOOG +2.90% and Facebook Inc. /zigman2/quotes/205064656/composite FB +2.58% . He also owns newer entrants, including cloud-services companies Okta Inc. /zigman2/quotes/210420951/composite OKTA -4.54% and Datadog Inc. /zigman2/quotes/214127379/composite DDOG -3.29% .

Large-cap tech produced outsized gains last year, as a cash cushion and global reach kept revenue riding high even amid the devastating pandemic.

Berg quoted Vladimir Lenin, saying, “There are decades where nothing happens; and there are weeks where decades happen.”

“I changed it,” he said. “In markets there are years when relatively little happens, and months or quarters when years happen.”

Berg added: “Last year was, in many ways, a perfect storm for someone who invests the way I did.”

Berg has been the sole manager of the T. Rowe Price Global Growth Stock Fund /zigman2/quotes/209395913/realtime RPGEX +0.49% since it was established in October 2008. The fund is rated five stars (the highest) by research firm Morningstar.

Here’s a comparison of the T. Rowe Price Global Growth Stock Fund’s performance (after expenses) to that of its benchmark, the MSCI All Countries World Index /zigman2/quotes/210598083/delayed XX:892400 0.00% , in U.S. dollars, and the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.95% , through Dec. 31, 2020.

The total returns for the fund and the S&P 500 were supplied by FactSet, while MSCI provided the gross and net returns for the MSCI All Countries World Index. The net return for that index reflects the minimum amount of dividend withholding tax (DWT) that an investor would incur when investing in that index. 

Before discussing 2020, Berg explained that his investment philosophy rests on four principles:

Getting back to outperformance in 2020, Berg said: “When you get real uncertainty like we did with COVID, people de-risk or freeze and do nothing — but in hindsight, there were amazing opportunities to buy different things.”

And this didn’t mean you had to catch a stock right at the bottom in March. For example, Berg’s fund didn’t hold shares of Etsy Inc. /zigman2/quotes/202790087/composite ETSY +1.11% coming into the COVID-19 pandemic. The stock hit its 2020 low of $29.95 on March 23, the same day the S&P 500 bottomed. It shot back up and hit record highs before Berg bought shares at around $80. Look at the chart from the end of 2019 through Jan. 6:

Berg continues to hold shares of Etsy. “A year and a half ago, people would question if this was a niche-y craft website. When people looked for other sources of income, it bounced.”

Etsy offers an online marketplace for small businesses and buyers, with products and services sorted into categories. The company’s third-quarter sales were up 128% from a year earlier, while its revenue for the first nine months of 2020 doubled from the year-earlier period. For all of 2019, sales had increased by 36%.

Etsy’s rise pointed to a trend that was obviously stoked in 2020 — the movement of retail sales to online providers and away from brick-and-mortar stores. Berg cited numbers for retail e-commerce penetration in the U.S., which increased to 16% in 2019 from 6% in 2008. But in 2020, this penetration increased to 26%, according to Jefferies Research. So that goes back to the initial quote from Lenin — here we had a decade of market penetration compressed into one year.

Peloton Interactive Inc. /zigman2/quotes/208035743/composite PTON +0.36% is another stock that Berg purchased after it had shot up, and then profited from. He said he had trimmed his position in Peloton, but had not cut his holdings of Etsy.

Tesla Inc. /zigman2/quotes/203558040/composite TSLA -3.78% was just about the biggest winner of 2020 by any measure. Berg said he has been holding the stock for three years, but is now “in trim and sell mode,” because “there is no question the market now is putting a very good amount of value” on the company’s electric-vehicle business.

He remains enthusiastic about Tesla’s prospects. He also said Tesla emphasizes how important it is not to sell a winner too early: “I made four times my money, then I started to trim and it went up another 100% from there.”

The largest holding of the T. Rowe Price Global Growth Fund is Amazon, which made up 3.1% of the portfolio as of Nov. 30. It is the only stock the fund has held every day since it was established in October 2008. Amazon’s shares surged 76% in 2020.

At any time over the past two decades, you might have been told that Amazon’s stock was too expensive because it traded at a high multiple to earnings. It still does — the price-to-earnings ratio, based on consensus estimates for the next 12 months among analysts polled by FactSet, is 70.8, compared with a forward P/E of 22.5 for the S&P 500.

But consider this: If we look at Amazon’s revenue growth over the past 10 reported years through 2019, the pace ranged from 20% (in 2019) to 41% (in 2011). Analysts estimate Amazon’s sales for all of 2020 increased by 35% from 2019.

/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,000.46
+22.89 +0.77%
Volume: 5.39M
March 5, 2021 4:00p
P/E Ratio
71.86
Dividend Yield
N/A
Market Cap
$1510.93 billion
Rev. per Employee
$297,430
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/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 2,108.54
+59.45 +2.90%
Volume: 2.20M
March 5, 2021 4:00p
P/E Ratio
36.98
Dividend Yield
N/A
Market Cap
$1417.47 billion
Rev. per Employee
$1.35M
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 264.28
+6.64 +2.58%
Volume: 26.82M
March 5, 2021 4:00p
P/E Ratio
26.16
Dividend Yield
N/A
Market Cap
$752.58 billion
Rev. per Employee
$1.47M
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/zigman2/quotes/210420951/composite
US : U.S.: Nasdaq
$ 215.96
-10.26 -4.54%
Volume: 6.90M
March 5, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$28.35 billion
Rev. per Employee
N/A
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/zigman2/quotes/214127379/composite
US : U.S.: Nasdaq
$ 82.20
-2.80 -3.29%
Volume: 8.26M
March 5, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$25.40 billion
Rev. per Employee
$556,190
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/zigman2/quotes/209395913/realtime
US : U.S.: Nasdaq
$ 43.29
+0.21 +0.49%
Volume: 0.00
March 5, 2021
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/zigman2/quotes/210598083/delayed
XX : MSCI Global
657.49
0.00 0.00%
Volume: 0.00
March 5, 2021 5:05p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,841.94
+73.47 +1.95%
Volume: 3.33B
March 5, 2021 5:44p
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/zigman2/quotes/202790087/composite
US : U.S.: Nasdaq
$ 200.30
+2.20 +1.11%
Volume: 5.64M
March 5, 2021 4:00p
P/E Ratio
76.08
Dividend Yield
N/A
Market Cap
$25.25 billion
Rev. per Employee
$1.22M
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/zigman2/quotes/208035743/composite
US : U.S.: Nasdaq
$ 105.13
+0.38 +0.36%
Volume: 14.66M
March 5, 2021 4:00p
P/E Ratio
230.19
Dividend Yield
N/A
Market Cap
$30.96 billion
Rev. per Employee
$494,288
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/zigman2/quotes/203558040/composite
US : U.S.: Nasdaq
$ 597.95
-23.49 -3.78%
Volume: 89.40M
March 5, 2021 4:00p
P/E Ratio
951.24
Dividend Yield
N/A
Market Cap
$573.94 billion
Rev. per Employee
$445,694
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