Good article on that GPFFX fund and the brains behind it:
moneycentral.msn.com
"This earnings-momentum fund soared 147.8% last year. Grand Prix Fund (GPFFX) has risen 27.8% more this year, as of Feb. 18. Investors have begun to notice: Assets, which were $15 million a year ago, are up to $460 million -- and more than $100 million of that has come over the transom in the last two months.
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In today's elevated market, Zuccaro's style has been attuned precisely to the kind of verticality that equity prices have displayed in recent years. This 27-month-old fund has the kind of since-inception record an Internet company would love: compounded annual returns of 123%, as of Jan. 31, after adjustment for its stiff 5.25% sales load.
The fund's short record makes it impossible to say how it might behave in a weak stock market (although it's doing fine amid the current weakness). None of the usual suspects, such as Morningstar, follow it. The 57-year-old manager claims an excellent long-term record in the world of private money management, however, and Zuccaro definitely is a man of the moment."
"When the landscape changed
Indeed, Grand Prix Fund exploits an investment strategy that wasn't even legal until 1997. That year, a law dating back to the Great Depression was erased -- prior to then, mutual funds were precluded from garnering the bulk of their returns from investments held less than one year. Zuccaro's turnover rate of more than 750% means he holds the average position only a few weeks or months.
"That changed the investment landscape," the manager notes, and enabled his firm, Target Investors of Wilton, Conn., to expand beyond institutional money management to the fund business. He launched the mutual fund that December.
Grand Prix's strategy is to buy the 25 stocks that score the highest on Zuccaro's proprietary computer models, which assign a score whose maximum is 1,200. The aggregate score of the current portfolio is 1,122, Zuccaro says. "These are the top 6% of companies in the stock market."
There is a bias toward issues showing the greatest earnings and stock-price momentum. The system's Holy Grail is finding companies that will deliver a positive surprise the next time they report their earnings; such shares tend to rally.
"The stock market as a whole is driven by earnings, but individual stocks are more responsive to surprises than the market as a whole," he says.
The fund buys an equal weighting of each company -- Zuccaro says nobody can predict which individual issues will do better than others -- so the top positions only become the largest because they have appreciated the most. As of mid-February, the fund's top positions were PMC-Sierra (PMCS), TriQuint Semiconductor (TQNT), Applied Micro Circuits (AMCC), Business Objects (BOBJ) and Check Point Software Technologies (CHKP).
The first three are semiconductor manufacturers and the last two are software companies. Zuccaro's system currently is leading him mainly to technology companies, which account for 91.5% of the portfolio. The balance is divided between consumer cyclical and health-care companies.
A policy to stave off disaster
The bane of high-flying stocks is their propensity to crash without warning. So among Zuccaro's sell disciplines is this: He sells a large-cap stock when it falls 10% off its closing 52-week high price; he sells a small-cap stock (with market capitalization under $2 billion) when it has fallen 20% off its closing 52-week high.
While 10% or even 20% doesn't seem like much of a pullback these days, Zuccaro says it's enough to break a stock's momentum, and can sometimes send it careening toward disaster. He supplied a number of examples from among positions he eliminated during 1999:
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