Barron's - USA (2021-02-08)

February 8, 2021 BARRON’S 31

FUND PROFILE

Talking With George Smith and Chris Pearson

Co-Managers, Davenport Small Cap Focus Fund

in stock options and move on. This

strategy has enabled the fund (ticker:

DSCPX) to deliver an 19.4% five-year

annualized return, besting 99% of its

peers in Morningstar’s Small-Blend

category. The fund’s 0.97% expense

ratio is below average for an actively

managed fund.

Smith, 45, got his start as an ana-

lyst at Davenport in 1997 right after

graduating from the University of

Richmond with a degree in finance.

But his actual connection began even

earlier. “I had a relationship with a

broker at Davenport & Co. when I was

in my teens,” he says. “I had maybe

$500 in an account that my parents

started for me. I was very interested in

stocks, and I would call [my broker]

and badger him incessantly. The size

of my account was very misaligned

with the amount of attention that he

had to pay to me and the number of

calls that I put into him.”

Pearson, 36, also went to the Uni-

versity of Richmond. He got an intern-

ship at Davenport working for Smith

in 2006 and has been there ever since.

The two work with 10 long-tenured

analysts, and everyone at the firm

invests in Davenport’s funds through

their retirement plan—roughly $25

million of which was in Davenport

Small Cap Focus at the end of 2020.

“All of our employees continue to

be invested alongside clients,” Smith

says. “It creates an alignment of inter-

ests and accountability.”

Insider ownership can encourage

executives to think long-term and not

take unnecessary risks with their and

fellow shareholders’ money for a

transitory payout. The average stock

in Davenport Small Cap Focus’ port-

folio is currently about 16% insider-

owned versus the Russell 2000’s 7%,

Smith says.

Controlling individual-company

downside risk is essential as the fund

is concentrated—typically holding

between 30 and 35 stocks—soany

Photographs by

JUSTIN T. GELLERSON

ASmall-CapFund

WinsBigWithout

RelyingonBigTech

O

ne sign of a good leader is

commitment. In the busi-

ness world, that often

means someone who

puts their own money on

the line and sticks with a

company through good

times and bad. Few fund managers

are as committed as George Smith and

Chris Pearson ofDavenport Small

Cap Focus. Both have worked their

entire careers at parent firm Daven-

port & Co., a Richmond, Va.–based

broker and financial advisor in busi-

ness since 1863.

Looking for that same managerial

commitment in the companies they

hold is key to the duo’s investment

strategy. They seek small companies

with executives who act as “owner-op-

erators”—those with large insider

ownership who behave more like the

devoted founder of a business than a

hired-gun executive who might cash

By LEWIS BRAHAM

Pearson, left, and

Smith look for small-

cap companies with

executives who act

as “owner-opera-

tors,” meaning those

with large insider

ownership. That

approach has led

Davenport Small

Cap Focus to out-

perform competitors

over the past five

years, while also

seeing a lower level

of volatility.