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Kim Scott featured on Countdown to the Closing Bell

Aired: Monday, November 14, 2011

Hank Herrmann
Kim Scott, portfolio manager of the Waddell & Reed New Concepts Fund, appeared live on Fox Business Network’s “Countdown to the Closing Bell” with Liz Claman to discuss domestic equities, her strategy and some of her current holdings.

View Kim Scott’s Interview

Transcript

"CUTTING THROUGH THE NOISE"
Fox Business Exclusive Interview
Kimberly Scott

Liz Claman, Fox Business

Interviewer:   Cut through the noise, get down to business and make some money; and that noise coming out of Europe, you are going to tune it out right now as you listen to the strategy of Kim Scott. She was just named one of SmartMoney’s young guns fund managers that aim high and deliver. Kim is the manager of the Ivy Mid-Cap Growth and Waddell & Reed Advisors New Concept Fund. So two funds and one fabulous woman and she’s here in a Fox Business exclusive. Kim, what is the strategy when it comes to picking stocks, and we should let our viewers know that both your funds over the past 10 years have had annualized returns of 6%. So you’ve got a nice sort of history behind you. How do you pick the names that go in there?
Kim:   It’s a very straightforward strategy. It is focused on picking highly profitable businesses that are supported by sound capital structures; good companies. We invest across the growth spectrum. It is pretty flexible and dynamic. We like growth whether it is high growth, mid growth, a little bit slower growth; we invest across the growth spectrum.
Interviewer:   Do you care about dividends?
Kim:   If we can get dividends, we think a total return component is a great head start for our shareholders. We are valuation sensitive. We like to buy growth companies but we apply a fair degree of valuation sensitivity.
Interviewer:   Okay. Do you limit your PE? I won’t buy anything above a 10?
Kim:   We don’t, but we look at the valuation commensurate with the opportunity and we are patient. We are long-term investors and that is almost sort of out-of-mind in the investing world today. We are very patient. We take a long-term perspective and we let our investment ideas mature over time and get the capital appreciation that comes with letting those opportunities go.
Interviewer:   Your Ivy Mid-Cap Growth Fund is up 8.5% over the past year. Your other fund, the New Concepts Fund, is doing just as well and, in fact, even better, up 9%. Let’s talk about the names that you like right now, and we will begin with Fastenal. That’s your first pick. Fastenal for those who don’t know is sort of a construction and industrial supply company. So let’s get to that one.
Kim:   So it’s a great example of our process and our strategy. It’s been in the fund for over 10 years. It’s been in the fund since we started managing the fund. That is unheard of.
Interviewer:   Do you like that it is at all-time high today?
Kim:   It is hitting all-time highs. It’s not just 52-week highs, it’s all-time highs.
Interviewer:   When did you say I want the stock in the fund?
Kim:   Well, we’ve owned it since 2001 and we’ve added to it over time and it’s the kind of company that ... it’s a great example of everything we do – highly profitable business, very sound capital structure, no debt, great management, just good fundamental opportunity, continue to grow their business and deliver earnings and cash flow that we like as shareholders.
Interviewer:   Okay. That PE, though, was 29; a little bit richer than I would imagine.
Kim:   That’s right.
Interviewer:   But you don’t care?
Kim:   Right.
Interviewer:   Okay. So it’s working for you.
Kim:   Well, I wouldn’t say we don’t care. We do pay attention to that and we do have to manage the position sizes around that.
Interviewer:   Your next pick is Polypore, ticker symbol PPO. I like this company because it makes the membranes that separate batteries.
Kim:   Right.
Interviewer:   Who would have thought, right?
Kim:   Exactly.
Interviewer:   Kim thinks.
Kim:   It’s great because they are exposed to a growth area across the globe to electric cars. They make the separation material that makes batteries work in electric vehicles. They also have the legacy business and separators for lead acid batteries and also batteries in consumer electronics like cell phones and iPads. So they have a nice base business that is funding the growth of this faster business in the lithium ion batteries for electric vehicles ... people don’t trust that whole growth environment. So the stock is not selling that expensively and we like the long-term opportunity there.
Interviewer:   So you’re a believer. You think eventually the electric vehicle storm will take this country at some point?
Kim:   Well, whether it takes it in a huge way or not, it’s kind of like Apple computer going from a 3% market share in computers to a 6% share. You double your exposure and that is a big boost for any one business, and it’s not just all electric vehicles. Its electric vehicles that have ... that are hybrid electric all the way to full electric so across that spectrum.
Interviewer:   Well, from electric vehicles to used vehicles, your next pick is CarMax.
Kim:   CarMax.
Interviewer:   KMX.
Kim:   We love CarMax.
Interviewer:   Didn’t Buffet buy this one a while back?
Kim:   Uh, I don't know that he did. I don't know that but ...
Interviewer:   I don't know why I thought he bought into the used car business.
Kim:   I don’t think he did.
Interviewer:   At the height of the recession is something he would do, right?
Kim:   CarMax is a great story because it’s doing something ... it’s creating a better opportunity for consumers to do something that they hate doing. It’s a better way to go and buy a used car. You can also sell your car to them. You don’t have to ... you don’t even have to buy a car. You can sell a car and then they’ll put it into the wholesale market or in their retail stores. They have great outer [inaudible] for pricing their vehicles, they are improving the way they put a vehicle in the showroom, what it costs to put it on the showroom floor and they have a lot of growth in front of them just in terms of trying to consolidate a very fragmented market.
Interviewer:   They’re down 13% over the past year. That doesn’t ...
Kim:   Right.
Interviewer:   ... spook you, right?
Kim:   No. It doesn’t.
Interviewer:   Does the $4 billion in debt worry you?
Kim:   Well, it’s debt-related to their auto finance business. So its legitimate debt and they make a good return on that auto finance business.
Interviewer:   Varian Medical Systems.
Kim:   Yes.
Interviewer:   This is equipment for tumor treatments.
Kim:   Yes.
Interviewer:   You like this as your fourth pick.
Kim:   We like this one a lot. It’s another very big position for us. This is just a well-managed company in that they are the leaders in technology for integrated systems, radiation therapy for cancer treatment and they have a product cycle that is replacing a lot of legacy systems here in hospitals in the U.S. and then they are selling new systems into the developed markets. So it’s a big market, it is very technology-driven and, again, a well-managed, highly profitable company.
Interviewer:   I have a question about your funds. You know as I was looking at the Top 10 holdings in each of them, the top names, there’s a lot of crossover.
Kim:   Right.
Interviewer:   For example, both have Cerner, both have Wyndham.
Kim:   Right.
Interviewer:   Both have Fiserv and Henry Schein.
Kim:   They’re managed exactly the same. They are distributed in different channels.
Interviewer:   That’s it?
Kim:   That's all.
Interviewer:   Simply that?
Kim:   Right.
Interviewer:   Yet one does slightly better than another year-over-year.
Kim:   Well, that’s dependent on the flows into the funds; what the level of cash is. Ivy has a little bit more cash than New Concept has had. The position size might be slightly different but for all intent and purposes they are managed the same.
Interviewer:   You were a ... I want our viewers to know this. Kim was a microbiology major in college and now she is managing money and, you know, you pick a name like Henry Schein, which is ...
Kim:   Right.
Interviewer:   ... medical products and pet products for veterinarians, etc. We have covered that company for a long time. People say not so sexy. If you look at a 10-year chart ... Kim: It’s a great ...
Interviewer:   ... of Henry Schein ...
Kim:   ... great return.
Interviewer:   ... you know, Stan Bergman the manager ...
Kim:   Yes.
Interviewer:   ... the CEO ...
Kim:   Steve Paladino
Interviewer:   Steve Paladino. Month after quarter, after quarter, after quarter they break it.
Kim:   And we’ve owned it ...
Interviewer:   They break the record.
Kim:   ... for 7 or 8 years. That’s what we do. We try to find companies like that that can just keep delivering returns to shareholders.
Interviewer:   You know, you don’t have to sit there ... and our point is when you look at somebody like Kim who is doing the hard work and studying these names for you, it doesn’t have to be the sexiest thing in the world. It just has to be good.
Kim:   Right.
Interviewer:   And well-managed.
Kim:   And be patient.
Interviewer:   [Laughter] She said sotto voce, be patient. Here is a 10-year chart of Henry Schein. It’s in both of Kim’s funds. She’s got $2.9 billion in assets under management; one of Smart Money's young guns. We are thrilled to have you. Come back.
Kim:   Thank you. I appreciate it. Thanks.
[End of interview]

The opinions expressed in the interview are those of Ms. Scott, and are current as of Nov. 14, 2011. They are not intended as investment advice or to predict or project the future performance of the Fund. Please click here for standardized performance information and holdings information for Ivy Mid Cap Growth Fund and WRA New Concepts Fund.

Consider all factors. Investing in mid-cap stocks may carry more risk than investing in stocks of larger more well-established companies. As with any mutual fund, the value of the Fund’s shares will change, and you could lose money on your investment. These and other risks are more fully described in the fund’s prospectus.

Ivy Funds are distributed by Ivy Funds Distributor, Inc., and Waddell & Reed Advisor Funds are distributed by Waddell & Reed, Inc.



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