When stock prices rise to the point where the company is fairly priced based on its earnings prospects, he sells. With that in mind, Lammert was heavily into technology early in 1994, but when tech stocks soared, he sold. He bought shares in health care companies at the point when health reform started collapsing, and came away with a profit.
Health care and high tech remain an important part of Mercury's portfolio, but some of the fund's biggest bets are overseas, Lammert says. The fund's top holdings, for example, are Nokia, a Finnish cellular phone company; SAP, a German software firm and Astra, a Swedish drug company.
As for the future, Lammert hesitates to guess. "I am much better at finding individual values than predicting trends or the markets," he says. "But we are not going to see the easy money that we saw in the 1980s. People need to reset their expectations to lower overall rates of return."
Fund: Janus Mercury
Manager: Warren Lammert
Assets: $674 million
Objective: Principal growth through investments in domestic and international equity markets.
12(b)1 fees: 0
Management fees: 1.33%
Minimum investment: $1,000*
Top holdings: Nokia, Finland; SAP, Germany; Astra, Sweden.
Phone number: (800) 525-8983
* Minimum is $250 for IRAs. Janus will waive minimums for those who agree to invest at least $50 per month.
Success is more a matter of side-stepping disasters than finding great buys.
Fund: Fidelity Overseas
Manager: John R. Hickling
Assets: $5 billion
Expense ratio: 1.28%
Objective: Long-term capital appreciation through investments in foreign securities.
Minimum investment: $2,500
Top holdings: Deutsche Bank
Phone: (800) 544-8888
Japan took a lot of money managers by surprise when its equity market started falling nearly five years ago. With Japanese equities down 10% to 20% from their highest levels, a number of institutions jumped back into the market before it fell again. And again. And again. By 1993 Japanese equities had plunged 63% from their high points and appeared to be recovering. Then they took another hit at the end of that year and many managers simply bailed out.
Although some believed recovery was on the way, the Nikei had disappointed so many, so badly for so long that few were anxious to invest in Japanese stocks in 1994. One exception was John Hickling, the 35-year-old manager of Fidelity Overseas, and, until October, manager of Fidelity Japan.
"Of course, in hindsight everything is clear, but a year ago I was looking at the market and seeing that interest rates were at very low levels, the government was passing a stimulative package and cutting taxes, which could only be good," says Hickling. "The odds were that the economy was going to surprise on the upside rather than the downside."
At the same time, Hickling was visiting hundreds of companies all over the world and seeing very positive signs at Japanese firms.
Managers of Japanese companies were coping with their country's dismal economy by moving to reduce costs and improve overseas distribution and production channels.
Good companies were working hard to get better, and were selling for reasonable multiples of earnings. This struck Hickling as a recipe for profits. He starting buying stock in a variety of Japanese companies, from Hitachi to Nomura Securities, in late 1993. His fund's 1993 performance was hurt when the market took another hit, but that has been the key to his success in 1994.
Fidelity Japan earned a tidy 16.5%, largely under Hickling's watchful eye. Fidelity Overseas, which has a broader reach, posted about a 2% profit, which may not dazzle but compares favorably to the performance of the average international fund, which lost 2% of its value in 1994.
Still, Hickling talks more about side-stepping disaster than about finding great buys. He held shares in just one Mexican company when the floor dropped out from under the peso in December. He also missed the bloodletting in the markets of Hong Kong, Malaysia and China.
His secret? "We visit one company at a time and try to make sense of the world," he says. Simple translation: He doesn't closely analyze the economics of nations. He looks at the financial picture of an individual company. When that picture looks bright he buys, no matter where the company is.
"You have to spend about 15 minutes looking at the macro-economic picture," he said, "but we try to stick to things that we have a snowball's chance in Hades of getting right. What we can do is find good companies that are doing things right."
Hickling can invest anywhere in the world except the United States, since the fund's investment objectives are foreign stocks. Right now, he believes the future is bright.
Now that speculative bubbles have burst all over the Third World--in Hong Kong, China and Latin America--he's finding bargains in a variety of markets.
"I am quite optimistic for '95."
A company that is good to its workers will be good to you.