26 BARRON’S September 30, 2019
Mutual Funds
TalkingWithJohnMalooly
PortfolioManager,WasatchUltraGrowthFund
Small-Capsfor
TheLongTerm
ByDebbieCarlson
METRICS MATTER TO JOHN MALOOLY, MANAGER OF THE SMALL-CAP-
focused Wasatch Ultra Growth fund. But finding the right
investments takes more than mere number-crunching. You
must also strike the right balance between imagination and
skepticism.
“When I’ve lost money in names, it’s because I’m too opti-
mistic on some facet of the business, their ability to execute,”
Malooly says. “And when you miss an opportunity or fail to
identify an opportunity, it’s almost always due to the lack of
imagination. It’s just not thinking far enough out.”
He has been at the helm of the $625 million Wasatch Ultra
Growth (ticker: WAMCX) for seven years, the past four as the
sole manager. The fund, which has a gold rating from Morning-
star, has beaten at least 95% of other small-company growth
funds over the past three, five, and 10 years. It has beaten its
benchmark, the Russell 2000 Growth index, by more than seven
percentage points a year over the past five years.
The 52-year-old Malooly worked his way up at Salt Lake
City–based Wasatch Global Investors over 21 years, starting as
a research analyst. He focuses on companies with unique attri-
butes in their industry or ones with recurring or repeat reve-
nue streams, as they tend to hold up better in downturns.
Many managers talk about finding companies with business
models that are disruptive. To Malooly, that means a model or
technology that creates value in such a way that incumbents
have a difficult time competing.
First and foremost is the management team. “That’s a
starting and stopping point. If a company we look at doesn’t
[have good management], I’m not interested,” he says.
Wasatch retains a former investigative journalist to research a
company’s management. “Every once in a while, you get either
really great information on the positive, or maybe you find out
things aren’t as good as we thought,” Malooly says.
High-quality management includes, of course, being a good
steward of capital. But Malooly also looks for intangibles such
as a good corporate culture. Consider top-three holding Payloc-
ity Holding (PCTY), a cloud-based payroll and human-re-
sources company. Ahead of its initial public offering, the com-
pany paid long-term employees cash bonuses totaling just over
$1 million, since they wouldn’t directly benefit from the IPO
Photograph by Michael Friberg