Veteran managers at new funds
By Mark McLaughlin, CBS MarketWatch
Last Update: 1:27 PM ET Feb 1, 2000
Mutual Fund Center
NewsWatch
NEW YORK (CBS.MW) -- Is it the manager or the sector? It?s a
question many tech fund shareholders are asking themselves these days as
the category that kept going up in 1999 has discovered gravity.
One way around the dilemma is to go with a manager that has delivered
above average returns in a variety of market conditions. Like investing in
an IPO, one of the best times to latch onto such managers is when they
are starting a new fund.
Top managers who establish a track record at one
fund family often make high-profile moves to
another fund firm, or perhaps start their own. Those
that stay put may expand their influence, putting
their hands in a number of different funds as a
co-manager or a subadvisor to another firm.
One of the most recognized names is Tom
Marsico, who had a cumulative return of over
650% for the 1990s running large cap funds at
Janus and his own firm. On Tuesday, he rolled out
his firm's third fund, Marsico 21st Century. The
new offering will be managed primarily by senior
analyst James Hillary and will extend the firm?s growth investing style to
stocks in all capitalization ranges. With less fanfare than Marsico, two
other management teams with solid records are also tackling new
challenges.
Turner Small Cap Growth (TSCEX) has ranked in the top 3% of its
category through a five-year bear market for small cap stocks but has
been closed to new investors for half that span. The experience behind the
fund?s 39.9% five-year average return can now be gained through
Preferred Small Cap (PSMCX), a formerly dismal value fund Turner took
over Jan. 1.
Co-managers Bill McVail, Chris McHugh and Frank Susteric stay out of
trouble by following the sector weightings of their benchmark, the Russell
2000 Growth Index. From there, it?s simply a matter of picking the best
positioned companies in each sector. The trio insists on superior
management as well as strong revenue and earnings growth. ?You want
companies that (can) go from $300 million to $3 billion (in market cap),??
McVail says.
Past holdings in the Internet services area like Doubleclick (DCLK: news,
msgs) have done just that, and McVail now sees huge demand for Web
consulting companies like Diamond Technology Partners (DTPI: news,
msgs), Digex (DIGX: news, msgs) and Mercury Interactive (MERQ:
news, msgs). He also likes Getty Images (GETY: news, msgs), a leader in
the storage and sale of digital images for advertising and publishing.
But lest you think Preferred Small Cap will be just
another tech fund, keep in mind that McVail and
Co. were actually handicapped last year by having
a tech weighting of just over 30%. ?We don?t get
seduced into making huge sector bets,?? he says.
?When sectors turn, that (strategy) helps a great
deal, and when a sector has its moment in the sun
we?re there.??
Another new fund, Putnam New Century Growth,
aims to be where the fastest growing companies
are, regardless of market cap. Co-managers
Roland Gillis and Chuck Swanberg were forced to
stick with mostly larger stocks at the other funds
they run -- the $24 billion Putnam Voyager
(PVOYX) and $1.7 billion Voyager II (PVIIX) --
due to bulding assets at those funds. That limitation
hasn?t hurt too much, though, as both those funds
rank in the top quarter of their categories over the
last three years. Gillis and Swanberg, who have a
combined 35 years of management experience and
21 at Putnam, face no such restrictions with New Century Growth, which
will close to new investors when assets hit $1 billion.
?With a new fund, you want to tread carefully,?? says Swanberg, who
selects mid and large cap stocks. ?In 1995 with Voyager the money came
in so rapidly we were struggling to put it to work. (Less assets) keeps the
complexion of the fund where we want it. Once you reach the five to ten
billion dollar asset area, things start to change.??
As the name implies, New Century Growth is focused on the technology
and telecommunications companies that will drive the new economy.
Swanberg requires earnings growth of at least 15%, and for profitless
cable and Internet stocks he looks for improving margins and substantial
management ownership.
New Century Growth, which carries a sales load, opened to retail
investors last month but it isn?t exactly new. The fund has been available
to Putnam employees since February, 1998, delivering returns of 30%
that year and 166% in 1999, according to Swanberg. Much of that
performance has come from the early establishment of top-five positions
in e-commerce software maker Verisign (VRSN: news, msgs) and
Internet holding company CMGI (CMGI: news, msgs).
New Century currently looks a lot like the Putnam OTC Emerging
Growth Fund (POEGX) with a 52% tech weighting and 65% of its assets
in small cap stocks. Swanberg admits that most of his winners such as
Broadvision (BVSN: news, msgs), Emulex (EMLX: news, msgs), Silknet
Software (SILK: news, msgs) and Veritas Software (VRTS: news, msgs)
didn?t exist three years ago. While OTC must stick to stocks below $4
billion in market cap, New Century can quickly change its stripes if large
caps start to look attractive. |
