Gerard Sullivan didn't always intend to become a portfolio manager. He initially anticipated pursuing a career as a securities analyst, but as asset management began to take off in the 1980s, he found himself drawn to the industry and working with a some of the most famous names in the industry. Under the guidance of legendary investor Peter Lynch, Sullivan developed advantages that helped his career. In 1985, while working a summer job at Fidelity, Lynch gave Sullivan what he considered one of his most difficult assignments: covering European chemical companies. Back then Sullivan said it was an “unfinished” effort. It was a time when there was little ADR and no investor relations page. Columbia Business School graduates must navigate differences in language as well as accounting and reporting standards to identify opportunities. “You know I had to do all this as a redneck from Brooklyn, right?” Sullivan said. “I have to figure this out and try to get these people to talk to me.” By the time Sullivan presented his findings, he felt as though he had not made much progress in addressing his questions. However, by his calculations, he learned that European chemical companies, which he said were trading at two to three times earnings, were much cheaper than their US counterparts at the time. that point, for businesses essentially in the same market. By the end of that summer, six stocks he picked had made the Magellan Fund's top 20 stocks, while four had made the top 10, he said. Even better, it's all set to double in the next six months in the foreign exchange market, he said. The fund — one of the best-known actively managed mutual funds in the world and which flourished under Lynch's leadership — divested its holdings before they reached their peak, he said. “So I was very impressed with him,” Sullivan said. “But I remember wondering, how can you put money into these names when I don't have access to anything related to research? I can't borrow anyone's research. I have to do all of that in raw form.” “And he said to me, 'you know what? You don't know much more than the guy in the next office. You don't know. But you know more, maybe more than anyone else,'” Sullivan speak. “It means I'm a one-eyed man in the land of the blind, right? Everyone is blind when looking at these companies but I was able to walk with one eye open. And that's all you need to have get the edge. And he always cared and still cares about 'what's your edge?'” The Numbers Today, Sullivan manages the Putnam Investments Core Fund (PMYYX), a multi-cap fund. The $4.4 billion fund he founded in 2010. collaborator and friend Arthur Yeager joined the fund in 2017. PMYYX is known as a “go-anywhere” fund. Where” as the fund invests in every style and size of market capitalization, targeting ideas in both growth and value stocks. It's an approach that gives investors the flexibility to act on ideas they suspect they have an edge in, across multiple asset classes. Their process has served the two managers well. In December, PMYYX ranked in the top 1% of peers in its category, according to Morningstar. It is in the top quartile of funds this year, as well as the top 6% of funds over the 10-year period, delivering annual gains of about 13%. “The numbers are very good,” Sullivan said. “If I'm still here it's because they're pretty good.” 'Stay alert' Sullivan likes to invest in beaten-down stocks where he expects the decline to be limited and a bit of good news to boost the stock. “Those are actually my favorites, because if I'm right about not losing money, you might be better off waiting without panicking,” he said. This could include companies coming out of bankruptcy. One example he cited was researched by his partner Yeager: Pacific Gas & Electric, the California-based utility that filed for bankruptcy in 2019 after facing complaints. about deadly wildfires in 2017 and 2018. Shares slumped, but Sullivan still remembered some of the company's advantages, including a trust set aside by the state to handle debt and a strong management team from Michigan-based utility CMS Energy, which Sullivan calls “the best utility company on Earth.” Ultimately, he said, “people need electricity” in the state of California. PG&E emerged from bankruptcy in 2020 and shares rose more than 14% that year. “It was a good name for us,” Sullivan said. It's an interesting situation. It took a lot of work and a little courage, but it wasn't too risky.” “Companies that come out of bankruptcy, it sounds like they're in a risky situation because they've been in a risky situation, but they often announce completely new balance sheets, with completely new management new and available at attractive prices. . If you're alert.” “We love those situations,” he said. “They don't come here a lot but when they do, we pay attention to them.” He also enjoys getting to know the management team of lesser-known companies preparing for IPOs, according to Sullivan, even if he doesn't invest in them from the start, initial research can help him determine whether he should jump in if they're a stock. shares decline later, which is common with newly launched companies. Mid-Cap Opportunities PMYYX holds more than 100 companies. The majority of the top 10 holdings are in Magnificent Seven's allocation has helped the fund outperform this year. Nvidia, the third-largest stock in the fund, is up about 80% in just over three months (top 10 holdings). But Sullivan said he holds megacap tech names loosely despite thinking some stocks are overvalued compared to others. he noted that it's hard to leave out the tech giants that have made up the bulk of the S&P 500's market capitalization, which is still growing even as they show signs of maturity. Today, Sullivan said the appeal is greater at smaller companies, where he suspects the market is not as selective. “There are a lot of small-cap companies that we're looking at and we're buying pieces of them,” he said. “But we're in the middle of it.” Still, he avoids troubled businesses, favoring names that are making money and appear to be in protected markets. “They may not grow really fast, but they are fast enough and they look cheap,” he said. “Because they are very cheap compared to large-cap companies.” Last year, this investor began building positions in small- and mid-cap companies that he considered attractive. PMYYX has a 0.11% position in Pinterest, the image-sharing platform that grew more than 52% last year, though is down more than 11% in 2024. Another is LPL Financial, a financial advisory platform prices grew more than 5% last year, and more than 14% this year. PMYYX had a 0.15% allocation as of March. A larger company that Sullivan recently purchased is FedEx, which he said is on track with new management looking to combine operations express delivery business by air and road. CEO Rajesh Subramaniam succeeds the company's founder in 2022. Sullivan also noted that transportation stocks remain attractive compared to peers like UPS, limiting the downside. And he said the cycle of capital spending that could boost free cash flow is coming to an end. The portfolio had a 0.22% weighting in FedEx as of March. “I think that's where FedEx is setting up that way, their free cash flow margin will be in the double digits,” he said. . “We think they have the right plan.” Ultimately, Sullivan said he's learned a lot from other investors, noting that good stock pickers have “pretty diverse” approaches that help them outperform the market over time. time. “I was a good student, you know, in the sense that I learned a lot from watching,” Sullivan said. “And I've found luck over the decades in being around some pretty good stock pickers, pretty good money managers.” “We intend to do well in all markets, no matter what. I mean, otherwise what the hell am I doing, you know, if I'm not trying to do that right? ” Sullivan said. “That's still how I feel about it.”