Mariko Gordon is one of the newest gurus introduced to the exclusive list of investment gurus followed by GuruFocus. Gordon founded Daruma Capital Management in 1995, after having worked with Valenzuela Capital Management as well as the small-cap guru Chuck Royce and his fund, Royce & Associates. Currently Mariko Gordon is the CEO and CIO of her fund Daruma Asset Management.
Daruma Asset Management
Mariko Gordon started Daruma in 1995 with absolutely no assets under management, but as she called it, “a clear goal.” Her goal was to build an investment firm where the business of money management would never interfere with her calling as a portfolio manager.
Daruma Capital Management is named after a fifth-century monk who reached China after a treacherous three years at sea and continued on to become the founder of Ch’an (Zen) Buddhism. Gordon explains that her fund is named this because Zen Buddhism and the successful investing draw many parallels including the importance of “separating illusion from reality, nonattachment to emotions and ideas, self-discipline and embracing impermanence.”
Daruma Asset Management only runs concentrated portfolios with no less than 25 and no more than 35 stocks. The fund focuses on this range because they believe that if they don’t own enough stocks the positions become supersized and their portfolio becomes too volatile. They also believe that if they own too many stocks, then their returns can be mediocre at best. Follow the attached link to read more about Daruma’s portfolio attributes.
Daruma is completely owned by the company’s employees, so they note that their own personal gains and successes rely on the long-term investment results. In 2010 the fund closed their small-cap product at $1.5 billion in assets and opened their SMid-cap portfolio in April 2010.
The fund’s website also highlights nine promises to its clients concerning their management style:
1. We will not sacrifice performance on the altar of asset growth.
2. We live and die by our stock picks.
3. We will strive constantly to improve our investment and business practices.
4. We will adhere to strict rules of stock selection and portfolio construction that limit downside risk.
5. We will monitor every holding against a written thesis with milestones and risk factors.
6. We will act with the courage of our convictions, yet will change our minds quickly when the facts dictate.
7. We will maintain the same intensity and hunger for excess return over time.
8. We will share profits and equity with our colleagues to foster stable returns over the long term.
9. We will be available to explain investment performance in depth.
Daruma describes its investing philosophy the best on its website: “The best time to buy is not just when a stock offers good value, but when we can clearly define what will drive the price higher—in most cases better-than-expected sales, earnings or cash flow growth.” While this is the philosophy they focus on, Gordon and Daruma also note the importance of a concentrated portfolio. The firm’s website highlights in multiple places that the Daruma team will invest in any market in which they can find 25 to 35 stocks that hold a strong potential to outperform.
Historical Performance and Portfolio Data
The fund which invests in high-conviction Small- and SMid-cap portfolios manages $2.3 billion for public and corporate pension plans, endowments, foundations and individual. Since its inception Daruma Capital Management has maintained notable small-cap long-term performance with average annual portfolio turnover of under 50%.
In Up and Down Markets:
As of Sept. 30, 2013, in the months which the Russell 2000 was up 5% or more, the fund’s valuation discipline meant that Daruma lagged roughly 63% of the time. On average, the fund trailed by 68 basis points and outpaced the Russell 2000 only 18 out of 48 months since its inception on July 28, 1995.
Also as of Sept. 30, Daruma shows its ability to do exceedingly well in the big down markets. The fund outpaced the Russell 2000 in 28 of the 35 months that the Russell was down 5% or more, meaning that the fund outpaced the index 80% of the time. Daruma Capital Management, on average, gained 201 basis points of relative performance.
Daruma’s historical data on their Small-Cap Equity Composite and SMid-Cap Equity Composite:
As of the third quarter Gordon held on to a cumulative 76 stocks valued at $2.2 billion. Over the past quarter she added 12 new stocks to these portfolios, representing a Q/Q turnover of 6%. The following five companies are her five largest stock positions and make up for roughly 20%.
1. Acxiom Corporation (ACXM): 3,284,081 shares, representing 4.3% of her total portfolio and 4.43% of the company’s shares outstanding. Over the past quarter she cut her holdings by -11.19%. Check out more information on Gordon’s holding of Acxiom here.
2. Dealertrack Technologies (TRAK): 2,063,045 shares, representing 4.1% of her total portfolio and 4.72% of the company’s shares outstanding. Over the past quarter she cut her holdings by -6.01%. Check out more information on Gordon’s holding of Dealertrack here.
3. CoStar Group (CSGP): 513,866 shares, representing 4% of her total portfolio and 1.80% of the company’s shares outstanding. Over the past quarter she cut her holdings -23.8%. Check out more information on Gordon’s holding of CoStar Group.
4. Healthsouth Corp (HLS): 2,399,098 shares, representing 3.8% of her total holdings and 2.75% of the company’s shares outstanding. During the past quarter she cut her holdings -5.51%. Check out more information on Gordon’s holding of Healthsouth.
5. Brunswick (BC): 2,039,223 shares, representing 3.7% of her total portfolio and 2.25% of the company’s total shares outstanding. During the past quarter she cut her holdings -6.07%. Check out Gordon’s holding of Brunswick here
You can check out more information on Mariko Gordon and Daruma Capital Management by looking at the GuruFocus Trades Page.