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WALL STREET, CALIFORNIA | PORTFOLIO STRATEGIES

In a Stock Picker's Market, 10 Fund Managers Who Shine

November 21, 2000|JOSH FRIEDMAN

The "stock picker's market" that people have been talking about for years is finally here. No longer can you guarantee hefty returns simply by chasing the latest momentum stocks or technology heavyweights. To make money these days, you have to do your homework.

If you want to leave that work to a professional, this column offers up some ideas: 10 mutual fund managers who have consistently proven their mettle as stock pickers.

Their strategies differ, but most managers in this group are performing better than the major market indexes so far this year--in many cases, vastly better.

What's more, each of the 10 boasts a three-year performance that ranks in the top third, or higher, of their fund category.

The group ranges in style from low-key Bill Nygren of Oakmark Select Fund, who favors "value" stocks such as Washington Mutual (ticker symbol: WM) and Office Depot (ODP), to the high-octane Garrett Van Wagoner, who remains focused on tech and can be a rapid trader.

The 10 were chosen from across the spectrum of market capitalization (small, medium and large stocks) and investing style (growth, value and "blend").

Here's a look at each manager, listed alphabetically:

* Glen Bickerstaff, TCW Galileo Select Equity:

Since Bickerstaff took over in June 1998, this large-company-growth fund has taken flight. Though Select Equity is up modestly in 2000, it is handily beating the blue-chip Standard & Poor's 500 index, as it did in 1998 and '99.

That's no shock to shareholders who have stayed with him: Bickerstaff also shined at Transamerica Premier Equity fund, which he managed before going to TCW.

Select Equity is a focused fund that owns only about 30 stocks. The risk, therefore, is that a few company bombs could jolt the portfolio.

Yet Bickerstaff uses a "top down/bottom up" approach: He seeks companies that have a proprietary edge but also the ability to benefit from major economic trends.

The fund has been heavy in tech, with holdings as of Sept. 30 including Dell Computer (DELL) and Siebel Systems (SEBL); biotech stocks such as Amgen (AMGN) and Genentech (DNA); and insurance issues such as Progressive Corp. (PGR).

* Nick Gerber, Ameristock:

Gerber's semi-concentrated portfolio, which holds about 50 stocks, was headed by financial names such as PNC Financial (PNC) and Allstate (ALL) at the end of the third quarter, along with issues such as Sara Lee (SLE) and Dow Chemical (DOW)--often derided as dull "old-economy" names.

But there's nothing dull about the fund's record: Gerber, who has run the large-cap-value fund since its 1995 launch, has notched annualized returns of 23.3% over the last five years, and the tax-efficient fund is up 16.2% this year through Friday.

With just $113 million in assets, Gerber has done all of this quietly.

* Ross Margolies, Salomon Bros. Capital:

Margolies is the Eddie Murray of fund managers. Like the ex-baseball player--who could be counted on to bat .300 with 30 homers each season--Margolies has been Mr. Consistent: His fund gained 26.4% in 1997, his first full year; 23.7% in 1998; 23.1% in 1999; and about 19% so far in 2000.

Margolies and his team look for out-of-fashion growth stocks as well as more traditional deep-value names. Assessing any stock comes down to a simple question, he said: "At this price, is the risk/reward ratio good? We don't worry so much about who's going to beat earnings estimates next quarter. We want to know who's going to win the long-term competitive war."

Margolies said Costco Wholesale (COST), which plunged in spring after issuing an earnings warning, typifies the sort of competitive advantage he seeks.

"You can see why they are growing globally. They have the lowest prices on stuff like that 15-pack of Bounty I always get, but they also create excitement with stuff that isn't there for long. If you see a wine you like, you better buy it quickly, and they have these awesome beach chairs, but only for six weeks--if you wait till July they're sold out."

* Bill Miller, Legg Mason Opportunity:

If the 1980s were the decade of manager Peter Lynch and Fidelity Magellan, the '90s were the era of Bill Miller and Legg Mason Value Trust, a large-cap fund that has beaten the S&P 500 for a record nine straight calendar years--apparently going on 10.

But Value Trust has swollen to nearly $12 billion in assets, and too much cash can eventually weigh down even the craftiest managers.

Miller's Legg Mason Opportunity Trust, however, is a mid-cap fund launched at the start of the year, and now holds about $1 billion. It may be starting a Value Trust-like streak of its own: It's up 6.8% this year, through Friday.

Though in recent years Miller was considered a big risk-taker for a value manager, the eclectic manager has built Opportunity Trust's concentrated portfolio with an odd mix of about two dozen names, including Amazon.com (AMZN) and the unglamorous Tupperware (TUP) and trash hauler Republic Services (RSG), as of June 30.

* Bill Nygren, Oakmark Select:

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