We interviewed Wall Street’s 7 top-performing investors to get their secrets for success — and their best ideas for 2020

Atlanta Capital

The saying goes that the best defense is a good offense. But counterintuitively, playing defense was perhaps the best way to play the stock market in 2019.

That has helped produce sterling results for Eaton Vance, a firm that stresses quality stocks above all else. In a period that included some dramatic market losses and a major rally in 2019, Eaton Vance has three of the 10 best-performing large-cap hedge funds this year, as well as two of the top eight managers.

Hudepohl is the lead manager of two of those funds. And one, the Atlanta Capital Focused Growth Fund, was also one of the best performers of 2018. Hudepohl’s two top funds have some stocks in common, which helps explain their similar performance.

The focused growth fund has 25 stocks and has $288 million in assets, while the Calvert Equity Fund contains 60 stocks and other assets and has $3.5 billion in investments.

Hudepohl is part of his firm’s growth equity team, which manages $4.2 billion in assets across several funds. He says Eaton Vance defines quality as “consistent growth and stability in earnings” and that deliver steady returns that will compound over time.

One-year return: 18.9% (EAALX), 18.7% (CSIEX)

Biggest holdings (as of 9/30):

EAALX — Visa (8.2%), Alphabet (7.2%), Danaher (5.7%), Microsoft (5.5%), Thermo Fisher Scientific (5.2%)

CSIEX — Visa (4.7%), Microsoft (4.6%), Danaher (4.6%), Alphabet (4.5%), Thermo Fisher (4.4%)

What worked in 2019:

“If you look at last 12 months, tech probably would have showed up largely because of Visa and Mastercard had been two contributors. Those have been in the portfolio for a number of years and really playing that long-term trend for a movement from cash to credit usage and those being the two dominant players.

“Healthcare has been very strong for us over the last nine to 12 months. And that was actually driven by Danaher, which is in the life-sciences space. Fantastic business. Thermo Fisher is in that group as well.

“Another one that’s been fairly strong for us is American Tower. That actually shows up in under REITs even though you don’t really own it for the sake of a traditional REIT in terms of income gathering. It’s really a long-term play on the growth in wireless data usage.”

What’s ahead in 2020:

“The underlying philosophy of the firm is high-quality investing. And that’s been kind of the mantra for the last 50 years. We like compounders, or businesses that are pretty consistent and that you can compound with over time.

“The majority of our excess return over the last 12 months has been driven by less downside capture in the market. So I think the number we’ve been looking at, depending on the portfolio, roughly 75% to 80% of our downside of our outperformance in the last 12 months has come from downside protection.

“We don’t try to predict macro trends. We’re bottoms-up, fundamental long-term investors, and so we don’t try to predict that … My guess is volatility will continue, somewhat like we’ve seen in the last 12 months, which again, I think is generally favorable towards high quality businesses and the businesses that we focus on.”