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A Conversation with Will Muggia of Westfield Capital Management

Blake Moore & Mary Mock
Distinctively Active Podcast
Distinctively Active Podcast Episode 3

Will Muggia:
I'm from a family of physicians. My mom was a nurse, my dad was a doctor, and I was the lone capitalist in the family, but they were hugely supportive of it. Peeling the onion back, analyzing a company was not dissimilar from what they were doing trying to figure out a disease or diagnosis.

Blake Moore:
Welcome to Distinctively Active Investing: Profiles and Perspectives, presented by Touchstone Investments. I'm Blake Moore, President and Chief Executive Officer of Touchstone. On this show, you'll find out what makes Touchstone, and its portfolio managers distinctive. We share in-depth interviews with people who are actively engaged in leading and managing the Touchstone funds and you will hear from other industry professionals, as well.


Will Muggia is portfolio manager of the Touchstone Mid Cap Growth Fund as well as the Touchstone Growth Opportunities Fund. Westfield Capital Management serves as sub-advisor to the Funds.

Mary Mock:
Hi, I'm Mary Mock, Divisional Vice President for Touchstone Investments. Our guest today is Will Muggia, CEO and CIO of Westfield Capital Management Company, LP., a growth equity boutique based in Boston. And since their founding in 1989, Westfield has used its GARP philosophy to build concentrated equity portfolios through bottom-up stock selection. Their sector specialists evaluate businesses up and down the market cap spectrum, and they have vast experience in their respective space. We begin today's conversation by discussing Will's upbringing and first foray into investing.

Will Muggia:
Yeah. My first foray in investing, I was a stock junkie as a little kid. I was the odd ball in the family. I had an uncle, my mother's brother, who was a stockbroker in Boston, and was always my favorite uncle. Really jovial guy. Super nice guy. We used to talk a little bit about what he did. And in high school, whenever I got days off, or if soccer practice was canceled for whatever reason, I would go into his office. I got the bug watching him, and he taught me a little bit, and that was really what sparked the interest at an early age. Literally when I was about 12.

He almost had like a Peter Lynch type philosophy. Using street smarts, and talking to people around different industries, and what companies were doing well and not well. This goes way back. There were these Cabbage Patch dolls that were really hot and I didn't know anything about investing. I went into him, I said, "Uncle Charlie, these Cabbage Patch dolls are going crazy. Everyone's buying them, it's the big Christmas gift." I ended up buying this company called Coleco. I think I put $800 in it, or something. Anyway, it got bought out, and I literally can't remember the price.

Whether it was a double, or a triple. Literally I was like, "Wow, that's pretty cool. I like this game." I think getting very lucky early on probably helped, but then I also got totally burned. He gave me some energy stock, and it was my first foray into charts too. I used to look at charts with him, and I got burned on an energy stock, so I learned very quickly it can go wrong as often as it goes right. But it taught me a little bit about what risk taking ... don't invest anything you can't afford to lose. No matter how good it sounds, it could totally reverse and go poorly. What it felt like when things could go wrong.

I was actually born in New Haven, Connecticut. My dad was an intern ... went to Yale medical school and was an intern at Yale New Haven. I was born there and then we moved to Boston where he went into private practice for a couple of years. But I actually grew up in a Navajo reservation in Gallup, New Mexico, first through fifth grade. My dad was the doctor who ran the clinic and my mother was the nurse, so they went to take care of the American Indians. Really fascinating time of my life. I have incredibly fond memories. Obviously, very different than a lot of my friends that grew up outside Boston.

And we did return to the same house just outside Boston for sixth grade. As my dad ... I have two brothers and he saw three looming calls, tuition someday. It was an incredible experience as a young person to see how a different society lives, that they don't have the resources, and materialism doesn't matter at all. They live off the land and take care of each other. Probably had a big impact on me, that's come through to today. And I was the lone capitalist in the family. I'm incredibly caring and philanthropic as a human being, but it was funny, where I literally was the only capitalist in our family.

The rest of them are all saving the world in much more noble endeavors, but they were hugely supportive of it. And I actually very much liked the healthcare side. At an early age investing in healthcare companies was my thing, because I was able to get real world data and information right from my family, and family contacts. Education was a big deal in my family. And peeling the onion back, analyzing a company was not dissimilar from what they were doing, trying to figure out a disease or diagnosis. Yeah, it was all good all around. After business school, I started interviewing with investment banks because that was the cool job. It just wasn't me.

I didn't really understand what I was getting into. But anyway, I got the coveted investment banking job in Boston, and it was with a great firm, and really good people I worked with. But I used to joke, some people drive to work, I flew to work. And living on a plane, and pulling all-nighters wasn't my thing, because it wasn't really investing. Bankers are doing transactions and trying to get companies bought, and sold, or doing restructurings, or IPOs. I took, probably, the wrong job for me. That said, it was great training. I did my two year bootcamp there, I learned a lot about financial modeling, I learned a lot about companies, and industries.

But I really missed the investment thing. I mean, quality of life, obviously, is rough as an associate in banking. Anyway, literally one of the institutional sales guys ... I was leaving one night, I think it was like 11:00, or midnight, going down the elevator, and he had come in from entertaining clients. We started talking and he said, "Will, it seems like you really like stocks. Have you ever thought about going to the buy side?" And I said, "Yeah, tell me about that." And he started talking about it. I had a few friends from business school that were working at very good investment firms, and I was envious a little bit of ... their schedules were their own.

They had companies in when they wanted them to come in and the hours were more normal, and it seemed a lot more interesting to me. I did casually start looking around and there were three different firms in Boston that I spoke to, and was fortunate to get offers from. What really attracted me to Westfield ... in fairness, I will admit, yes, the head guys were in their 70s. I knew someday, perhaps, there was an opportunity, if I did well, to take over. But what I really liked was the bottom up stock analysis. They really did it right, and I enjoyed that. They were a dying breed of long term investors. And I think the whole world's gone hugely short term investing, and being a long term investor can be a big competitive advantage to.

They were growth at a reasonable price. It dovetailed with what I liked. It was a good culture, really good people. They did the work and the performance had been good, and they were mostly high net worth. It was an opportunity for me to really grow an institutional business there. It was both exciting, from a career change standpoint. I wanted to be on the buy side and to really invest in analyze stocks. But also, it seemed like a great business opportunity to grow a new business to them on the institutional side, and diversify away from just high net worth.

Mary Mock:
What would you say makes your firm different from all of your growth equity competitors that are out there?

Will Muggia:
I think what really makes Westfield different ... I mean, there's a couple of things. One is, just incredible domain expertise in knowledge. The analysts at Westfield, they’re career analysts. At a lot of firms, the senior people and the most successful analysts get promoted away to portfolio manager, and then they lose the expertise that built up. We have career analysts with these sector analysts and partners. They've been covering their space 10, 20 years, they know all the players. And being deep-dive sector expert, I think it's a huge competitive advantage.

The other thing that I've always said is, you need to understand the fundamentals and do all the numbers. But you need to have psychology component as well to be a really successful investor. I feel like with our team, we have people that, yes, they are incredibly bright, work really hard, they understand all the financials, and the fundamentals. But we spend a lot of time on, what's the setup? Where is the street expectations, versus us? What's going to happen if they do this? The other thing is just, we're also long-term investors. And I feel like so many of our peers and competitors ... it's all about who's going to make the quarter.

I literally could care less about the quarter. If they can double earnings over the next three years, or the stock price could double over the next few years, that makes us very interested. I feel like being a long-term investor and really knowing your space, and having a network ... I can't tell you how important the industry network is. Everyone you call is clearly a sample size of one. But I think when you put them all together, that's how to build the mosaic, and you can really corroborate your thesis. Or if it's not sounding right, you might walk away from it. Everything comes together.

The other thing is, just the passion for the business is really important. If you literally eat, sleep and breathe stocks, you can work at Westfield Capital. If you don't, it's not going to work for you. It's just what we do. We all love it. I don't know, because I obviously don't work for my competitors, or my peers. I need a lot of people. There's some that have components of what we have, but it's ... I don't always see the passion in the detail, and the work ethic, and the drive that we have to figure out where to go.

Mary Mock:
You defined your investment process as one of GARP, Growth At a Reasonable Price. What does GARP investing mean to you?

Will Muggia:
Yeah. I think of GARP investing a little more broadly maybe than just the definition. If you say to someone, "Growth at a reasonable price," they are oftentimes I think some of our closet value. When I think of GARP ... if you show me a used car lot, I'll make you a bid. You might not like the bid, but I'll show you one. On the other hand, if there's a Ferrari, we're going to pay for a Ferrari. There are really excellent companies that are growing at inordinately high rates. Someone who can literally grow revenue 20 or 30% while expanding margins, we will pay a lot for that.

It's still growth at a reasonable price, and we're disciplined on valuation, so we're not going to overpay. But the portfolio is pretty balanced, and we do both secular and cyclical growth. And growth at a reasonable price for an industrial can be a different metric where you're looking for the proverbial 16% grower trading at 13 times, that's GARP. On the more innovative tech and biotech that we own, if there's a company that can literally grow earnings 30% plus for the next three years, I have no problem paying 30 times our forward estimate for that company. To me, I like the definition broadly.

I think overpaying for companies is a huge mistake, and I think a lot of people do it, so we always have what we call our wishlist. You need to be disciplined on price because you don't know when things are going to get rocky. If you're overpaying going in, you're hoping to sell higher going out, forget it. More likely, you're going to get hurt. We're very disciplined on the price we're paying. And we look at everything on a probable weighted expected value. And we just look at the percentage chance at our upside target, versus the downside target, and that's what we really look at. Our GARP discipline keeps us from overpaying on the way in.

Mary Mock:
What are the biggest changes in the investment business that you've seen during your career?

Will Muggia:
The biggest thing for sure, is this incredible proliferation of passive. And then the short termism of these quant funds, and smart beta, and high frequency. Just amazing to me that so much money is being run by the machines. With the correction in the crash we saw with Coronavirus in March, you could see this forced liquidation in delivering by the quant funds. That took A+ companies down as much as lousy companies. It reminded me of the '87 crash, where I literally wasn't sure the capital markets were going to survive. That's one thing that has really changed in my career.

Particularly in the '90s. Bottom-up fundamental stock picking, you could do really well. The smaller the cap, the better you could do because there wasn't good street coverage, and people would just ignore them. We did incredibly well for, for a long time. The biggest change, definitely, is just this obsession with passive. Obviously these big bench names have done very well, because of flows into passive. But when you have a reset and all the passive money hits sell, they all go down the same amount. In a weird way, it actually really benefits active coming out of really turbulent periods.

Because there's an opportunity to upgrade quality almost for free. And that's almost like an oxymoron, and maybe it sounds more like a credit fund, or debt fund. But we look at it as stocks too. I can sell X, Y, Z, and buy an A+ company at the same price. You don't get a lot of opportunities to do that, but because of the proliferation of passive, there's no distinction between good companies and bad companies - It sells. And I think we need to take advantage of things like that, but the two biggest changes definitely passive and short termism.

Mary Mock:
Over the next 10 years, what do you think will be the biggest trends that are going to drive market and investment performance?

Will Muggia:
Listeners can take it with a grain of salt. I'm an active manager. I do think good active managers are going to do really well again, because now you've got over 50% of assets in passive. At some point you get back to the ... the inefficiency was so great when I got into the business in the early '80s. I mean, it was like shooting fish in a barrel in small cap. There were companies I would go see that had no Wall Street coverage. And you'd literally find a company growing at 20% trading at six times earnings. It was really fun. Because if you did the work you got rewarded and I think going forward, we've become so crowded in ETF and passive that there's going to be a really good opportunity for active again.

The other thing is to use timeframe ... I call it timeframe arbitrage, to your advantage. So much money. The hedge fund money, a lot of these quants, the high frequency guys, they're all looking at picking up pennies and nickels in front of a steamroller 100 times a day. And I think to make really big money, you actually have to be longer term focused and look at a franchise that can double or triple in size over five years. That's where you want to be invested, not playing this game with the real short term players. In small cap, I was just saying, there used to be huge inefficiency, and there's still inefficiency there, but you don't always have all the ducks in a row. Where you might have a really great business opportunity for a company, yet, maybe a B management team.

You don't always get everything. A big, really good management team, new product cycle, and with mid cap, it's what I always called ... it's the graduates, so that the really good small cap companies that made it become mid. What I like about mid is that they've got established franchises. A lot of times they're looking at potentially going internationally, which would accelerate revenue growth. They're looking at tuck-in M&A, that would accelerate revenue growth. You've got really quality businesses that can grow faster than their large cap brethren and still move the needle through geographic expansion, new product expansion, and M&A. Then if you look back at absolute return, I think mid cap on an absolute return basis has outperformed every other cap range. It's always been our sweet spot.

We manage across the cap spectrum and we love all our children equally, but we're definitely known for mid cap growth and it's a space that we love. Getting in the investment business today. You're always going to have the headwind of passive and ETF, which is very low fee. And active, I think, is going to be a harder business, and a smaller business. There won't be, say, as many jobs as there were in the '80s and '90s. I think it's an incredibly interesting industry. And the advice, I guess I would give someone, looking at the business is, do you love it? I've been doing this over 30 years. I jump out of bed every day to go to work. If you don't love the game and want to grind, and meet with companies and think, and connect all the dots you're just not going to do well.

Because the people who eat, sleep and breathe, it, they're going to crush you. I wouldn't go into it. If you think it's kind of cool, or it might be okay, or maybe it pays well. Those aren't the right reasons. I think it's going to be a tougher industry because of fee compression. You're competing with free, so you need to provide value. The onus on performance is only going to go higher. I think the good active managers that generate alpha1 are going to do really well and a lot of other firms are going to go by the wayside. The advice I would give is, be very careful who you go work for. Make sure they have a repeatable discipline process, and they're proven alpha generators.

Because no matter what the story is, or what they say, if whoever you're working for can't deliver, they're going to go out of business. Be really careful who you work for and then make sure the investment style that you love, or that makes sense to you, is what the firm you're interviewing with does.

Mary Mock:
Let's get to know you better outside of Westfield. What are your hobbies and interests?

Will Muggia:
My favorite thing to do outside of work is surf. I have four kids, two boys, two girls, and my two boys really got into surfing. My oldest son ... it was a chance for me to spend more time with him. And he ended up going to Brown because we used to surf in Rhode Island a lot. I think he chose his college based on proximity to his favorite surf break. But for me, that's my meditation. That's when I'm calm and relaxed. What I love about surfing is when you're ... it's so hard by the way. It's the hardest sport I've ever done. When you're out surfing, all you think about is the next wave. "Where's the pocket? Where do I get in here? Is that a right or a left? Where was that rock? Okay, I should go this way."

When I'm out there totally disengaged from the world for an hour, it's the greatest thing in the world. Then my number three kid ... my other son is very into surfing as well. From a family vacation standpoint, all our family vacations are surfing around the world, and it's just been an incredible eye-opener. We usually combine it with some community service work wherever we go, so it creates a really ... surfing is a great vibe in general, the whole sport, but we're fortunate enough to be able to combine it with travel, and it's been really fun. Definitely my favorite hobby. I would say though, probably the most interesting place. It's just so different from the world that we live in, in the US. Where, as you may know, their national GDP is happiness.

And to just go around a country ... we spent a week traveling around Bhutan. The roads are pretty tough, and some interesting places we had to stay, but the people are amazing. There are monks that have nothing material, but are incredibly happy and peaceful, and kind. I would say, if I had to pick a place that was probably the most interesting, I would say Bhutan. It was really fascinating. Not only the landscaping geography, which is just incredible. Mountains and rivers everywhere we went. But also the people really made it, and just such a different lifestyle than we're used to.

Mary Mock:
If you weren't in the investment business, what do you think you'd be doing for a career?

Will Muggia:
If I wasn't in the investment business, what would I be doing as a career? I never really thought about that. Teaching, definitely, I think would be of interest to me. I've been fortunate enough to teach a couple classes. One was at an MBA, one is with a program that Middlebury does. That's Middlebury College in Vermont. That's really an amazing program, called Mid-core. I think teaching would be really fun. Whether I could do it full time, I doubt it. That's the thing with the pace I like to work. I think it would be hard for me, but I think teaching would probably be the only other thing I could imagine doing. That's the only thing that comes to mind right now anyway.

Mary Mock:
Lots of leaders have daily routines to help them stay focused. Do you do anything from a daily routine perspective to help you stay motivated throughout the day?

Will Muggia:
From a daily routine, I don't need anything to keep me motivated, because I've always been really motivated. I'm fortunate enough to do a job that I really love. The one routine I have though is, I need to work out every day, or do something. It's not like I'm one of these gym rats lifting weights, but I'll either go for a run, I'll go for a bike ride, I'll do an online class. I think physical health is really as important as mental health. The other thing we started at Westfield maybe five years ago is, we have a daily meditation at Westfield every day.

I don't push this on anyone. I read a lot about it. There was a fascinating study Harvard Medical School did, and just heard about a lot of the benefits from meditation. And I think meditation is a great way to clear your mind and calm your thinking. Some of my best ideas have popped in my head through meditation. I think trying to ... from a daily routine standpoint, trying to have both, physical breaks and mental breaks is something that I think is really important.

Mary Mock:
Will, what's the best career advice you've ever received?

Will Muggia:
Going back to some mentors I had early on in my career, best career advice, I guess were things like, "If you work harder than everyone else, your chances of being successful are very high." And I think everyone has a different work ethic and obviously you enjoy what you do. It's easier to work harder. But early on, at the beginning of my career, I was definitely the first one in, the last one to leave everyday. It was a pride thing. For career advice, I would just tell people, first of all, never give up. If you're really passionate about something, work hard and never give up.

The other thing, and this is hard, obviously, is don't be afraid to fail. Failing forward, to me, is so important. I feel badly for a lot of the younger generation today and the younger kids, they always have to be perfect. They need perfect grades and perfect SATs and go to the perfect school. And you don't learn anything by doing that where you really learn is by making a mistake and failing, and then you get better the next time. I would say, the people who get luckiest practice the most, or work the hardest. Funny how that works. But also, just don't be afraid to fail and take risk, and then learn from your failures, and the risks you're taking.

Mary Mock:
Thanks to you, Will, for sharing your insights today into your investment process, as well as personal interests, and background. Until next time, I'm Mary Mock.

Blake Moore:
Thank you for listening to Distinctively Active Investing. You can find the resources mentioned in the episode, and learn all about Touchstone active managers at www.touchstoneinvestments.com/podcast. If you like the show, please share it with someone you know. We appreciate when you subscribe to the show and take the time to leave us a rating and review. Find our podcast on Apple Podcasts, Spotify, or your favorite podcast app. I'm Blake Moore and from all of us at Touchstone Investments, thank you for listening.

1Alpha is the portion of a fund’s total return that is unique to that fund and is independent of movements in the benchmark.

Investment return and principal value of an investment in a Fund will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. All investing involves risk.

Performance data quoted is past performance which is no guarantee of future results.

The information provided is for general information purposes and is not investment advice. Opinions may change without notice based on economic, market, business, and other conditions. Please consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. The prospectus and the summary prospectus contain this and other information about the Fund. To obtain a prospectus or a summary prospectus, contact your financial professional or download and/or request one at TouchstoneInvestments.com/resources or call Touchstone at 800.638.8194. Please read the prospectus and/or summary prospectus carefully before investing.
Touchstone funds are distributed by Touchstone Securities, Inc. a member FINRA and SIPC.

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