Progressive (PGR, Financial) was a top contributor to performance during the quarter. Much of the outperformance was likely driven by a market that rotated out of high multiple technology stocks and into companies with more direct earnings exposure to higher interest rates. In the world of U.S. Large Cap Growth investing, banks and insurers have long been relative pariahs – so out of favor that they make up just a low single-digit (or even zero) percent of most of the major domestic large growth indices. However, that hardly means they are all bad businesses. Progressive has long proven to be an exceptional growth company with a laser-like focus on balancing growth with exceptional returns by methodically managing and segmenting its risks and all the while aggressively reinvesting in marketing and expanded distribution. Many of Progressive’s competitors have significant legacy distribution arrangements that have led to overly narrow distribution. Although it has been quite some time – nearly a decade – since P&C insurers have raised personal policy rates to the extent that we have seen over the past 6 months, we note that insurance customers tend to shop more when policy prices rise. Progressive’s independent and direct distribution allows the Company to reach a much broader audience, which positions it well to sign customers away from narrow-focused competitors as rates rise for the first time in recent memory.
From David Rolfe (Trades, Portfolio)'s Wedgewood Partners first-quarter 2022 letter.
