Growth Managers Graze in Tamer Pastures
By Christopher Davis
Morningstar.com
Tuesday October 22, 6:00 am ET
If you had told us in 1999 that the then tech-dominated Janus portfolios would be home to old-economy stalwarts like Berkshire Hathaway (NYSE:BRKb - News) or Boeing (NYSE:BA - News) just a few years later, we might've thought you were off your rocker. Yet, that's exactly what happened at Janus and elsewhere.
As the prospects for a quick rebound in tech and telecom stocks faded in 2001 and 2002, many aggressive-growth managers turned to steadier, less-volatile names to add ballast to their sagging portfolios. Even the once-acclaimed Van Wagoner funds, whose hyper-aggressive portfolios delivered stunning gains in the late 1990s and equally jaw-dropping losses in the 2000s, have gotten into the act. Van Wagoner Mid-Cap Growth (Nasdaq:VWMDX - News) manager Raiford Garrabrandt, for instance, recently slashed the fund's still-heavy tech stake to make room for health-care and retail stocks.
Below we've listed a sampling of the tamer picks that have come up in our conversations with fund managers.
Apollo Group (NasdaqNM:APOL - News): Nicholas-Applegate Growth Equity's (Nasdaq:NAPGX - News) Bill Chenoweth looks for stocks with strong earnings momentum, a criterion that had often led him to load up on tech in recent years. Bold bets on tech are noticeably absent from the portfolio these days, though. Indeed, Chenoweth expects tech to suffer from depressed capital-spending levels for a while, so he's reduced the fund's tech stake to 11% of assets, which is slightly underweight relative to its typical mid-growth peer. Stocks such as Network Appliance (NasdaqNM:NTAP - News) and Conexant Systems (NasdaqNM:CNXT - News) recently got the boot to make more room for education stocks like Apollo Group, which are among the few industries where he's finding robust growth. Reflecting his positive outlook on the economy, Chenoweth has also recently stocked up on cyclical issues such as oil-and-gas company Smith International (NYSE:SII - News) and retailer Bed Bath & Beyond (NasdaqNM:BBBY - News).
McGraw-Hill (NYSE:MHP - News) and Tribune (NYSE:TRB - News): After being crushed by an outsized tech stake in 2002, new lead manager David Sette-Ducati and comanager Eric Fischman have taken steps to limit MFS Mid-Cap Growth's (Nasdaq:OTCBX - News) volatility. The pair sliced the fund's tech weighting and hiked its exposure to health-care stocks. The portfolio is increasingly tilted to steady growers like these rather than pricier stocks with more-explosive growth potential. Fitting the bill recently have been fairly staid media names such as McGraw-Hill and Tribune.
Boston Scientific (NYSE:BSX - News), First Health Group (NasdaqNM:FHCC - News), and Moody's (NYSE:MCO - News): Focusing on steady growers with reasonable valuations is actually nothing new for Liberty Acorn Twenty's (Nasdaq:ACTWX - News) John Park. Park employs a cautious approach, only buying growth stocks that trade at a discount to what he thinks they're worth. Recently, he has homed in on strong growth stories such as Boston Scientific and First Health Group. Park also bought a stake in Moody's. Although it's a bit richly valued, Parks argues that it's one of the highest-quality businesses he has ever seen, and cites its extremely high ratio of free cash flow to revenue as justifying a premium multiple.
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