300 Editions of Excellence: A Framework for Quality Growth

Video Transcript

Voiceover (VO)

In 1935, amidst the Great Depression, William McCormick Blair founded a firm with a simple belief: when our clients succeed, the firm's success will follow. That belief became the foundation of a research philosophy focused on identifying quality growth companies early, before they are widely known. That philosophy would shape decades of innovation and lead to one of William Blair's most enduring traditions: the Current Better Values list.

In 1976, William Blair launched the Current Better Values list, a curated selection of emerging growth ideas. Shortly after, then Director of Research, Ned Hoban authored the first CBV framework, defining why CBV was created, and the investment philosophy that still guides us today.

00:00:55, Tony

The vision for it was really based on the need to, you know, compete and stand out. It was almost a marketing stake in the ground about what William Blair stood for, what kinds of companies should outperform over the long term. It was started at a time in the mid-70s when small caps had done very poorly, nobody was paying attention.

And, you know, so it was sort of an existential moment for small caps where they had to prove that research mattered and that small caps could be great investments.

00:1:33, John

300 CBVs means we've been doing it for almost 50 years. And when you think about, this is an industry where fads come and go, the fact that we've been doing the same thing, with the same approach, the same criteria for five decades, I think is amazing. And it really speaks to the staying power of William Blair and the quality growth investing model that we have.

00:01:53, VO

From its earliest days, CBV reflected a commitment to long-term thinking, a principle embraced by leaders who helped shape the firm's future.

00:02:04, Dave

The Current Better Values list is a reflection of, basically, our belief in growth stock investing. We had a number of companies on the list that were almost proprietary ideas for the firm, because we had taken the company public, or we had discovered a company through our research efforts.

00:02:23, VO

While leadership set the tone, the heart of CBV lies in its research, an approach that has remained remarkably consistent for nearly five decades.

00:02:34, Dylan

My space, consumer discretionary, is extremely volatile and arguably not traditional Blair, you know, sector coverage. So, it's really allowed me, or forced me, over time to have a real discipline in really trying to identify well-run growth assets in a space where that's not very common.

00:02:50, Sharon

For the consumer sector, we're really looking for deep, competitive moats. We're looking for healthy earnings growth over the CBV two-year time horizon. Hopefully, we're looking for inflection points or catalysts that will propel above average growth during that time frame. And, you know, in an ideal world, we're looking for valuations that are a bit below average, so you have that opportunity for the compounding of the earnings growth augmented by valuation expansion.

00:03:19, VO

That same discipline applies across every industry we cover, from technology to health care, industrials to global services.

00:03:26, Myles

Biotechnology is obviously a large industry. We're constantly innovating, trying to solve diseases of high unmet needs that impact our daily lives. But the CBV enables the biotech team to highlight the best quality companies, really across the spectrum. It also gives us an opportunity to really highlight our highest conviction ideas on development stage names, as well, that that are hopefully going to be the next true and novel innovators in the field to drive that next wave of therapeutics in diseases with massive unmet need.

00:04:01, Tim

Residential and commercial services companies align with the Current Better Values list really well. These are companies that have really high recurring revenue streams, really high customer retention rates. They are asset light, so they tend to generate high cash flow conversion rates. They are non-discretionary in nature of the services a lot of times. So, what you end up with is the stream of durable, predictable, compounding free cash flows.

So, the challenge here isn't identifying whether or not you have quality growth stocks. You know that these companies are high quality. The challenge is identifying that inflection point where you know the intrinsic value of the company is higher than the value where the company's currently trading. And, so, it's not about finding quality. We know that these companies have good value. It's about finding that point where the value is currently better, literally finding the CBV.

00:05:06, Ralph

What I primarily look for are companies that are great, long-term secular winners, that may be temporarily dislocated. What I mean by that is, maybe they had a quarter where there was a key metric that didn't go necessarily in the right direction, that I have confidence will eventually rebound. And I really try to focus on the long-term, high-quality business models that I think will outperform the market over two years.

00:05:27, Arjun

I would expect that CBV just becomes more tech heavy, or more thematic heavy, maybe is the better way to look at it. So, you know, right now we're at the precipice of this, kind of, big, maybe decades long theme of AI coming to market. So, I would expect, more and more, CBV is going to reflect the AI theme. And that doesn't mean just tech, but it means a lot of the other industries that are going to participate in this with the AI theme.

00:06:00, VO

But CBV isn't just about sectors. It's about adapting to change and anticipating what's next.

00:06:07, Richard

So, macroeconomic shifts are an important part of the CBV selection process. So, it's not the only part of the things we look at, we do look at a mosaic that I think is important for any investment process. But, macro is part of that, along with, you know, earnings growth, valuations, or looking at technicals. And I think where it's important for us at William Blair too, relates to our style of investment, which revolves around looking at small mid-cap quality growth stocks where the economy, or the cyclicality of the economy, plays a much bigger role in the performance of those stocks.

But, I think what's interesting about CBV and what we do at William Blair is, in some, or many ways, we try to neutralize that cyclicality by looking at growth over value. Growth tends to be more defensive, less cyclical. And we look at quality over junk, which, again, helps to filter out some of that pro-cyclicality that you would normally see in other parts of the market.

00:7:20, VO

And as markets evolve, so does the way we discover opportunity, often before companies even go public.

00:7:25, John

If you go back over the last 20 or 30 years, the number of public companies has declined, basically by 50%, so there's half as many investable names in the stock market today. So, that really has two implications from our perspective. One, the best companies don't necessarily come public like they used to. So, it used to be, as an analyst, you could just, sort of, sit back and know that the best companies would eventually make it public, not always the case now.

The second thing is, in a Reg FD world where information is disseminated almost instantaneously, how do we get an edge? One way that we do that is to really embrace the concept of private capital markets, understanding what those companies are doing because they're oftentimes the disruptive companies starting to have an impact on those public companies that we're all familiar with. So, allowing our analysts to really be experts much earlier in the lifecycle of a company and an industry allows them to be better stock pickers for our clients.

00:8:33, VO

As we look ahead, leadership remains committed to the principles that have guided William Blair for nearly 90 years.

00:08:37, Brent

William Blair's collection of intellectual capital really features Current Better Values, always has. I remember when I joined in 1997, I heard about Current Better Values way back then. It's really a combination, I'd say, of everything we do.

So, if I think of how we exist to find great investment ideas for clients, deliver incredible returns, you then put that on a growth curve of the life cycle of a company. You have collaboration across the teams to come up with ideas. They're looking at every sector. If you think of our values, too, right away, it's excellent in its performance. No question. Excellent in how it is we put the thoughts together and make the list selections through many different markets. And then if you go even further, it is absolutely client-focused and always been aligned with integrity, or anchored in integrity, on everything it does.

So, I look at it and I think, what could be more perfect than to talk about current better values, in light of how we as a firm see the world today? That endures over time.

As I think of the next 50 years, and I think of all the possible ways that we will eat, all the possible ways that we will think about our health, all the possible ways will communicate, travel, as well as just experience life differently, maybe even in different locations than we even know exist today.

Each one of those will typically have a company pushing and powering it. It's exciting to think about what it could be, and especially exciting if we can be there early, as we always have been, helping investors understand what will endure, what will win, and what, ultimately, are the winners of tomorrow.

00:10:05, VO

From its origins in the Midwest to a global research footprint, CBV continues to stand for thoughtful, long-term analysis. As we celebrate the 300th edition, we honor not just a list, but a legacy of insight, curiosity, and conviction.