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Beyond the Obvious

For His New Funds, Marsico Gathers Little-Known Facts on Big Stocks

June 02, 1998|RUSS WILES

Tom Marsico is off to a hot start with his new mutual funds.

The former star manager of the Janus Twenty and Janus Growth & Income funds left Janus Funds last year to form his own money-management firm. In January he launched two funds: the Marsico Focus fund, which concentrates on roughly two dozen large stocks, and the more diversified Marsico Growth & Income fund, which currently owns 45 stocks.

Year-to-date, the Focus fund is up 28.9%, ranking it among the top 1% of large-growth-stock funds. The Growth & Income fund is up 22.3% year-to-date, placing it among the top 4% of peer funds.

Given those numbers--and Marsico's impressive 10-year record at Janus--investors have already sent a lot of money his way. The two new funds hold about $450 million.

Marsico, 42, grew up in Denver, and started buying stocks as a teenager. He earned a bachelor's degree in biology from the University of Colorado and an MBA from the University of Denver. After working as an analyst at brokerage Boettcher & Co. and as a pension-fund manager at Fred Alger Management, he joined Denver-based Janus Capital Management in 1987.

Marsico guided Janus Twenty to a spectacular average annualized gain of 22.4% from Jan. 31, 1988, until Aug. 11, 1997, when he quit Janus. He did nearly as well with Janus Growth & Income, which returned an average of 21.2% annually from May 31, 1991, through Aug. 11, 1997.

Marsico, based in Denver, was interviewed by Russ Wiles, a mutual fund columnist for The Times.

Times: What spurred you to branch out on your own?

Marsico: I was excited by the idea of starting my own firm. I really felt I could perform better for clients at the helm of my own ship. I wanted to form a strong team of professionals, with all sharing equity ownership in the firm. When there's one common goal, that provides the best framework for good investment results.

Times: You focus on large-capitalization stocks, and that sector has been the clear market leader for the last five years. But some managers worry that big-name stocks are overvalued, and that their prices already reflect the companies' near-term potential. Under the circumstances, has it been hard to put together new portfolios?

Marsico: No. We've been able to find attractive stocks, as can be seen in our performance. We've been able to find a lot of great investment ideas, like Ford Motor Co. [up 64% this year]. That goes to show you that the "efficient-market" theory doesn't work so well with large companies.

Times: That's an interesting view, since Wall Street tends to believe the efficient-market theorists who argue that big-name stocks are very efficiently, or accurately, priced, given that so many people are watching them.

Marsico: Not so. In fact, one real advantage of investing in large- capitalization companies is that they're not well-followed by Wall Street. Active managers [i.e., non-index funds] own less than 10% of the typical large company, whereas they own closer to 35% or 40% of medium and small firms.

Generally, analysts don't want to spend time figuring out what's happening at large-capitalization companies because they assume everyone else is doing it. If you look at a large stock like General Electric, for instance, you will find that it has outperformed the market for 25 years, and over shorter time frames within that stretch. Yet it's not widely owned by active portfolio managers.

Times: But certainly these stocks are more widely researched and have more analysts covering them.

Marsico: Actually, that's not true either. It's amazing how few analysts follow the major pharmaceutical companies, for example.

Besides, probably half of a research analyst's time is spent doing merger-and-acquisition work, 25% is spent on marketing and only the final 25% on research. I mean, how do you miss a Ford Motor if you're really doing your homework? As you might guess, we don't use Wall Street research--we do our own.

Times: How do you do it?

Marsico: We visit companies, talk to management and try to delve deep into an organization by asking intelligent questions.

We talk to suppliers, customers, competitors and more. One way we found out that Boeing's shipment schedules wouldn't be met was by talking to a supplier who indicated that they weren't seeing the order rates from Boeing that one would expect with a ramp-up in activity. [Marsico sold Boeing last year before the company officially announced its shipment problems.]

Another example is Warner-Lambert. The stock fell from about $48 to $38 or so [in December, when the firm's diabetes drug, Rezulin, was pulled from shelves in Britain because of side effects].

We called a couple of endocrinologists and people who ran diabetic clinics. We knew how important this drug was for diabetes patients, and we didn't feel it was justified to pull the drug because of a study that showed problems associated with liver enzymes in less than 1% of users.

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