In a great market for big-name stocks, White Oak Growth Stock fund has been at the head of its class.
This Akron, Ohio-based mutual fund ranked among the top 2% of large-growth-stock funds in the five years through March 31, according to fund tracker Morningstar Inc. It also has remained a performance leader in the last year even as it has ballooned in size, with $600 million in new assets since late 1996.
Calling the shots is 55-year-old James Oelschlager, who earlier in his career spent 15 years running the pension fund at Firestone Tire & Rubber Co. Under his direction, the fund had a $300-million surplus by the time the program was terminated in 1984.
Oelschlager founded money management firm Oak Associates the next year. The company now manages $8.5 billion in assets, including $650 million in White Oak Growth and nearly $40 million in the Pin Oak Aggressive Stock Fund, a sibling fund that invests in medium-size companies.
Oak Associates' private-account clients include the giant California Public Employees' Retirement System, or CalPERS, as well as pension programs run by the city and the county of Los Angeles.
In White Oak Growth, Oelschlager oversees a concentrated portfolio of only about two dozen stocks, with a hefty weighting in technology companies. Financial services and health care are the other two sectors that he currently favors.
Oelschlager has a bachelor's degree in economics from Denison University in Ohio and a law degree from Northwestern University. He spoke recently with Russ Wiles, a mutual fund columnist for The Times.
Times: For the most part, the companies you own aren't just big, they're giant, especially in terms of market capitalization. What explains your preference for larger names?
Oelschlager: It's not necessarily a preference for super-large companies. I just think that the prices of many of these stocks are attractive at this time. Particularly in the tech area, I think the strong will get stronger while the weak just bump along.
But we invest in medium-sized companies too, such as Linear Technology, a maker of integrated circuits that has a market cap of only $6 billion.
Times: The fund also has a reputation for being very concentrated, and now holds only about two dozen stocks. Explain your stock-selection process.
Oelschlager: Above all, we're looking for companies that we think will do well in terms of earnings growth over several years, not the next quarter or next six months. We tend to be patient investors, so if a company misses its quarterly earnings-per-share estimates by a penny or two, it doesn't bother us. It may actually give us an opportunity to increase our position.
We first try to determine which [industry] sectors are most attractive, then we shop around in those sectors. So we're top-down managers.
If you look at our portfolio, you will see about 65% of the assets are invested in technology, although technology is very broad. Two other areas we like are pharmaceuticals and financial services, especially banks and insurance.
By contrast, we're not spending any time looking at oil companies because we don't think oil is attractive right now.
Times: Are you cautious on oil because prices are weak and because of the general disinflation trend in commodities?
Oelschlager: That's right. Our basic investment theme is that inflation and interest rates will continue to decline. Tech stocks will be among the beneficiaries, while tangible-commodity producers like oil companies will face difficulties.
Times: What do you look for in a company's management?
Oelschlager: We like managements with whom we're comfortable--managements that are fairly conservative and not too promotional. Some managers just want to hype their organizations. We stay away from them.
Times: Big, blue-chip stocks have clearly been the stocks to own over the last five years, consistently leading the market. But White Oak stumbled in the fourth quarter, losing 8.1% as some of your tech stocks were hit. Some critics of big growth stocks say they are overpriced. What's your argument for owning these stocks, especially tech issues, at current prices?
Oelschlager: One of the really good things is that most superior technology is developed in the United States, so American companies are the first to use it, making us the low-cost producers in a lot of industries. Also, the rest of the world needs this technology, so they buy it from us.
In addition, there will be many new products and upgrades coming along on a regular basis. For example, you have Windows 98 and new Pentium chips [from Intel Corp.] ahead.
Times: So you see good demand for technology not just here but abroad?
Oelschlager: Absolutely. Many [tech] companies are deriving about 50% of their top and bottom lines [revenues and net income] from international markets. If anything, we expect to see those percentages increase.