Gerard Sullivan didn’t always plan to be a portfolio manager. Initially, he expected a career as a stock analyst. But as asset management took off in the 1980s, he found himself drawn into the industry, working with some of the most famous names in the business. It was under the tutelage of legendary investor Peter Lynch that Sullivan developed the edge that served him in his career. In 1985, on a summer job at Fidelity, Lynch gave Sullivan what he believed to be one of his most difficult assignments: covering European chemical companies. It was an effort Sullivan said just “didn’t happen” at the time. It was a time when there were few American depositary receipts, or ADRs, and no investor relations pages. To identify opportunities, the Columbia Business School graduate had to navigate differences in languages and accounting and reporting standards. “I had to do all of this, you know, as a chump from Brooklyn, right?” Sullivan said. “I had to understand these things and try to get these people to talk to me.” When Sullivan gave a presentation of his findings, he felt like he hadn’t made much progress with his questions. By his calculations, however, he had gleaned that European chemical companies, which he said were trading at two to three times earnings, were much cheaper than their American counterparts at the time – for businesses in essentially the same markets. By the end of that summer, six of his holdings wound up in the Magellan Fund’s top 20 names. Four ended up in the top 10, Sullivan said. Even better, he said everything doubled over the next six months in exchange. The fund — one of the better-known actively managed mutual funds that grew under Lynch’s leadership — divested the names before they reached their peak, he said. “Well, I’ve had a lot of success with him,” Sullivan said. “But I remember asking myself, how could you put money on these names when I couldn’t find anything close to research? I couldn’t borrow anyone’s research. I had to do it all raw.” “And he said, ‘You know what? You don’t know much compared to the guy in the office next to you. You do not know. But you know more, maybe than anyone else,” Sullivan said. “Of course I was the one-eyed man in the land of the blind, right? Everyone was blind looking at these companies, but I could open one eye to get around. And that was all you needed to get by. And that was the point , and it’s still about, “What’s your advantage?” The Numbers Today, Sullivan manages the Putnam Investments Core Equity Fund (PMYYX), a multi-cap fund with $4.4 billion in assets that was launched in 2010. Partner and friend Arthur Yeager took over as co-manager in 2017. PMYYX is known as a “go anywhere” fund as it invests in all market cap styles and sizes, targeting ideas in both growth stocks and value stocks, an approach that has given investors flexibility to follow ideas where they suspect they are advantage, across a wide range of assets.Their process has served the two managers well.In December, PMYYX ranked in the top 1% of its peers, according to Morningstar.It is in the top quartile of funds as well top 6% of funds over a 10-year time horizon, returning an annualized gain of about 13%.“The numbers are good,” Sullivan said. “If I’m still here, it’s because they’re so good.” ‘Stay awake’ Sullivan enjoys investing in bearish stocks, where he expects the decline to be limited and little good news to boost the stock. “Those are my favorites, actually, because if I’m right that I’m not losing money, then you can wait it out better, without panicking,” he said. This may include companies emerging from bankruptcy. One example he cited was researched by Yeager’s partner: Pacific Gas & Electric, a California-based utility that filed for bankruptcy in 2019 after claims from deadly wildfires in 2017 and 2018. The stock cratered, but the Sullivan had in mind some of the company’s strengths, which included a trust set aside by the state to manage liabilities and a strong management team created by Michigan-based utility CMS Energy, which the Sullivan called it “the best utility on Earth.” After all, he said, “people need electricity” in the state of California. PG&E emerged from bankruptcy in 2020, and the stock jumped more than 14% that year. “It was a good first name for us. This is an interesting situation. It took a lot of work and it takes a little courage, but it’s also not that risky,” Sullivan said. “Companies coming out of bankruptcy sound like risky situations because they were risky, but they usually come out with brand new balance sheets, with brand new management, and it could come out at a beautiful price if you stay awake.” “We like these situations,” he said. “They don’t get around much, but when they do, we look out for them.” He also prefers to get to know the management teams of lesser-known companies that are about to go public. Even if he doesn’t invest with them from the start, the initial research can help him determine whether he should jump in if there’s a drop in the stock later, as is often the case with companies just making their debut, according to Sullivan. Midcap Opportunities PMYYX owns more than 100 companies. The majority of the top 10 holdings are in Magnificent Seven companies, an allocation that has helped the fund outperform this year. After all, Nvidia, the fund’s third-largest holding, is up about 80% in just over three months. (Tesla is the one Magnificent Seven company notably absent from the top 10 entries). But Sullivan said he holds the megacap tech names with a light hand. While he considers some more overvalued than others, he noted that it’s hard to dismiss the tech giants that account for so much of the S&P 500’s market cap, which are still rising even as they show signs of maturing. Today, Sullivan said the pull is more to smaller companies where he suspects the market isn’t as clean. “There are a lot of small caps that we work on and buy pieces of,” he said. “But we’re in the middle of it.” However, he avoids troubled businesses, preferring money-making names that appear to be in sheltered markets. “They might not be growing really fast, but they’re growing fast enough and they look cheap,” he said. “Because they are very, very cheap compared to their large-cap peers.” Last year, the investor began building positions in small- and mid-cap companies it found attractive. PMYYX has a 0.11% position in Pinterest, the image-sharing platform that gained more than 52% last year, although it is down more than 11% in 2024. Another is LPL Financial, the financial advisor platform that gained more than 5% last year, and over 14% this year. PMYYX has a 0.15% distribution since March. A larger company that Sullivan recently bought is FedEx, which he said is on the right track with new management seeking to combine air and ground operations. CEO Rajesh Subramaniam will succeed the company’s founder in 2022. Sullivan also noted that the transportation stock remains attractive, relative to peers such as UPS, limiting downside. And it is nearing the end of a capital spending cycle that could boost free cash flow, he said. The portfolio has a 0.22% weighting in FedEx, as of March. “I think that’s where FedEx is set up in that way, its free cash flow yield is going to be in the double digits,” he said. “We think they have the right plan in place.” Ultimately, Sullivan said he’s learned a lot from other investors, noting that good stock buyers have had “pretty selective” approaches that have helped them outperform the market over time. “I’m a good student, you know, in the sense that I’ve learned a lot from observation,” Sullivan said. “And I’ve had the good fortune over the decades to be around very good stock pickers, very good money managers.” “We intend to do well in all markets, no matter what. I mean, otherwise, what the hell am I doing, you know, if I’m not trying to do it right?” Sullivan said. “I still feel that way about it.”