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These fast-growing companies that track key consumer trends have produced a nearly 50% gain for one fund in 2020

Fund supervisor Gerald Sparrow picks shares by screening 5,000 companies each quarter to search out out that are rising most rapidly primarily based on unit gross sales.

He runs a portfolio of greater than 100 shares in the Sparrow Growth Fund. With a portfolio that massive, you would possibly count on index-like efficiency, however this yr’s outcomes have been much better than that.

In late April, Sparrow mentioned his funding technique and named Carvana Co.
CVNA,
+4.51%,
a web-based platform for auto gross sales, for instance of the kind of quickly rising firm he’s wanting for. At that time (April 29), Carvana’s inventory was down 8% for 2020 and the Sparrow Growth Fund
SGNFX,
+2.77%
was up 7%.

Here’s a chart displaying the efficiency of Carvana, the fund, the S&P 500 Index
SPX,
+0.36%
and the S&P 400 Mid Cap Index for 2020 via Aug. 3:


FactSet

That’s a outstanding bounce again for Carvana, however the fund’s efficiency this yr has been beautiful.

Sparrow manages about $190 million via Sparrow Capital Management in St. Louis.

During an interview, he pointed to a thread that 4 companies held by the fund have in widespread — the accelerating motion away from money spending, as shoppers spend extra time at dwelling.

• Square Inc.
SQ,
+1.50%
reported a 44% enhance in complete internet income for its fiscal fourth quarter ended March 31, from the year-earlier quarter. The firm is anticipated to announce its fiscal first-quarter outcomes on Aug. 5. As sellers utilizing the fee processor’s platform adjusted to staying at dwelling in the course of the COVID-19 pandemic, “Square created a place for them to create online stores for their products, and then you could open a cash tab for peer-to-peer payments,” Sparrow mentioned. Revenue from bitcoin
BTCUSD,
-1.23%
transaction processing for the fiscal fourth quarter elevated virtually five-fold from a yr earlier, and made up 22% of complete income. “So the transition from cash to noncash transactions accelerated,” Sparrow mentioned.

• Sea Ltd.
SE,
+3.58%
is predicated in Singapore. The firm gives digital leisure, together with the Free Fire recreation, and on-line fee and e-commerce companies. Sea’s first-quarter income doubled from a yr earlier. The firm presents the SeaCash app, which is a cellular pockets linked to Alphabet
GOOG,
-0.64%
GOOGL,
-0.63%
unit Google. “So this is another cashless transaction company,” Sparrow mentioned. The firm is anticipated to announce its second-quarter outcomes on Aug. 20.

• Trade Desk Inc.
TTD,
+1.21%
presents cloud-based promoting companies. For instance, companies can buy promoting area on TikTok via Trade Desk’s platform. The firm’s first-quarter income was up 33% from a yr earlier. It will announce its second-quarter outcomes on Aug. 6.

• EXP World Holdings Inc.
EXPI,
+13.92%
runs the eXp Realty on-line platform for residential property gross sales. The firm’s first-quarter gross sales had been up 73% from a yr earlier. It is anticipated to announce its second-quarter outcomes on Aug. 5. The U.S. housing market is on hearth, as some folks really feel safer in their very own properties fairly than in residences, and as large investment companies bid up home prices as they search to personal them and lease them out. “They have a cloud campus for agents who want to work remotely. So they get revenue from agents listing property,” Sparrow mentioned.

Fund holdings

As quarterly gross sales numbers roll in, Sparrow will regulate the fund’s portfolio to take away companies whose unit gross sales progress is slowing, whereas including extra speedy growers. New positions make up 1% of the fund, and Sparrow permits these positions to extend in measurement because the shares rise, so long as gross sales progress stays excessive relative to friends.

Here are the fund’s prime 5 holdings (of 119) as of June 30:

Company Ticker Share of portfolio Total return – 2020
Shopify Inc. Class A SHOP,
-0.28%
3.8% 172%
Coupa Software, Inc. COUP,
+0.15%
2.7% 114%
Netflix, Inc. NFLX,
+2.21%
2.6% 54%
RingCentral Inc. Class A RNG,
-3.10%
2.4% 81%
Tandem Diabetes Care Inc. TNDM,
+0.31%
2.4% 77%
 Source: Sparrow Capital Management, FactSet

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