Advertisement
YOU ARE HERE: LAT HomeCollections

INVESTING / QUARTERLY REVIEW & OUTLOOK

New Fund Leaders in a New Market Era

April 08, 2002|JOSH FRIEDMAN | TIMES STAFF WRITER

The bear market of the last two years slammed many stock portfolios, and more than a few stock pickers' reputations.

But the rough times on Wall Street also brought new stars to light in the mutual fund business. Some conservative stock fund managers who sweat the fundamentals have produced superior performance for their shareholders since the market's bubble burst in spring 2000.

Many of these managers still are little known, but they are gaining attention--and cash from investors looking for funds that may continue to lead in a market environment that is much different from the wild times of the late-1990s.

Here's a look at five stock funds that either registered gains or lost far less than their average peer during 2000, 2001 and again in this year's first quarter, and whose longer-term records also are strong:

*

Gary Hibler, Robert Zagunis, Jensen Fund (Large-Cap Growth)

Hibler has been aboard since the Portland, Ore.-based fund's 1992 inception; Zagunis joined in 1993. The fund--whose management team also includes Val Jensen, David Davies and Robert Millen--gained 20% in 2000 and was flat in 2001, whipping the average large-cap growth fund both years. In the first quarter it rose 3.3% while its average peer fell 2.7%, according to fund-tracker Morningstar Inc.

Analysts at Morningstar say the $285-million-asset fund offers a "tamer take on growth investing."

Zagunis explains the fund's mission as a search for "the best businesses in the best sectors, regardless of their size--the companies that have a sustained competitive advantage."

The fund starts by screening for companies that have recorded returns on equity of at least 15% in each of the last 10 years, winnowing the universe of about 10,000 public companies to about 120.

After assessing the quality of management and the business prospects at each of those survivors, the firm trims its list to about 50 companies, then buys only those that sell for 60% or less of the team's estimate of fair value.

The result is a concentrated fund with about 25 holdings, most of them currently large companies. "With our style, we tend to end up with companies that are No. 1 or No. 2 in their industry," Hibler said.

The firm's approach keeps it away from newer companies and those in heavily cyclical industries such as manufacturing, whose fortunes sway with the economy.

That approach also has kept the fund out of trouble, the managers say. "A long record of solid return on equity usually means these companies have a tradition of survival," Hibler said. "We don't pay much attention to the economy. We stick to what we know."

Technology stocks such as Intel Corp. and Cisco Systems Inc. were good to the fund in the late 1990s, but the Jensen team dumped both stocks in 2000 when they no longer passed the initial return-on-equity screen, and both have since plummeted as business in the tech sector has waned.

In the first quarter, as new money came in from investors, the Jensen Fund added to top holdings such as credit card issuer MBNA Corp. (ticker symbol: KRB), financial firm State Street Corp. (STT), transaction processor Equifax Inc. (EFX), clothing maker Jones Apparel Group Inc. (JNY), and drug giant Pfizer Inc. (PFE).

*

Ted Kellner, FMI Common Stock (Mid-Cap Blend)

Kellner has managed the fund (known until recently as FMI Capital Growth) since 1981, working with co-manager Patrick English since 1997. The Milwaukee-based fund gained 19.1% in 2000 and 18.6% in 2001, trouncing the average mid-cap blend fund (blend meaning a mix of "growth" and "value" shares) both years. In the first quarter it rose 5.9%.

The strategy, according to Kellner: "We try to buy good businesses with strong management and fair, if not cheap, prices."

Often that leads the $56-million fund to companies experiencing temporary difficulties, an investing approach that requires patience.

"Our intent is to hold a stock for two to five years," Kellner said. According to Morningstar, the fund's annual portfolio turnover rate of 47% is less than half the fund industry's average.

Kellner believes the small- and mid-cap stocks the fund tends to favor are still the most attractive segment of the market, but less dramatically so than two years ago.

The fund's portfolio trades for an average price-to-earnings ratio of about 17 based on FMI's earnings estimates for 2002. Two years ago the fund traded for about 13 times estimated earnings.

Still, by comparison, the large-cap Standard & Poor's 500 index trades for about 23 times this year's earnings estimate.

Kellner and English, who focus on "depth and quality of management" as well as valuations, try to meet with executives from every company in the portfolio.

"I've been in this business 32 years, and you can kind of tell who's giving you the straight stuff and who's giving you a song and dance," Kellner said.

The fund seeks to limit risk by focusing on companies with recurring revenue streams and stable products--if not a lot of sizzle.

Advertisement
Los Angeles Times Articles
|
|
|