WSJ>
May 12, 1999
Your Money Matters
Big Brokers Left Funds Flat
In Race to Pick Hot Stocks
By GEORGETTE JASEN
Staff Reporter of THE WALL STREET JOURNAL
If investors in many mutual funds aren't already depressed about dull
returns, here is some news that will add insult to injury:
Big brokerage firms easily won bragging rights for first-quarter
stock-picking prowess, making most mutual-fund managers look like
amateurs.
Ten of 15 big brokerage firms in this column's survey beat the 5% return
on the Standard & Poor's 500-stock index in the quarter, a feat only about
one in four actively managed stock mutual funds accomplished. But
investors perhaps can take comfort that neither group did well for the 12
months ended March 31, when just four of the 15 brokerage firms
exceeded the 18.5% return on the S&P, compared with one in seven
mutual funds.
Internet and other technology stocks topped the recommended lists of
many of the big brokerage firms, although financial-services stocks,
retailers and consumer-products companies also were among the best
performers. As the second quarter progresses, some firms are keeping
their lists technology-heavy, while others are taking a more diversified
approach.
Everen Capital Corp.'s Everen Securities in Chicago, which
underperformed the S&P for the 12 months, moved into third place for the
quarter after opting to overweight tech stocks. While it has reduced its
technology exposure somewhat since the quarter ended, the sector still
dominates its list.
"After a dismal third quarter, we recognized that the momentum had
moved into technology, especially the Internet," says Ed Dunleavy,
Everen's director of equity research. Qualcomm Inc., a San Diego
company that provides digital wireless-technology products and services,
was Everen's top performing stock in the first quarter, with a 140% return.
Everen added America Online Inc. and Exodus Communications Inc. to its
recommended late last year and MindSpring Enterprises Inc. and
EarthLink Network Inc. in January.
But J.P. Morgan & Co. in New York, which ranked second among the 15
firms in the first quarter and for the 12 months, opted for a different
approach. "We're trying to have a broad portfolio," says Doug Cliggott,
chief investment strategist. "We look for opportunities group by group."
Charles Schwab Corp., the San Francisco brokerage firm, was the
best-performing stock in the quarter for Morgan, with a 51.3% return.
Morgan's list also included Amgen Inc., the Thousand Oaks, Calif.,
biotech company, and Tricon Global Restaurants Inc., Louisville, Ky.,
which operates Pizza Hut, Taco Bell and Kentucky Fried Chicken stores.
Brokerage Houses' Stock-Picking Prowess
Estimated performance of stocks on the recommended lists of 15 major
brokerage houses through March 31. Figures include price changes, dividends,
and hypothetical trading commissions of 1%.
Latest
Quarter
One
Year
Five
Year
Biggest Gain*
Biggest Loss*
Lehman Brothers
7.9%
31.2%
224.8%
Applied
Matrls
44.5%
Progressive
-15.2%
J.P. Morgan
10.8
22.7
N.A.
Chas
Schwab
51.3
Service
Corp.
-52.1
Goldman Sachs
11.3
21.5
198.8
EMC -
Mass.
50.3
Cendant
-17.5
Bear Stearns
0.8
19.6
204.3
America
Online
89.5
Rite Aid
-49.5
PaineWebber
5.5
17.9
278.7
America
Online
89.5
Tower
Automotive
-25.3
Edward Jones
2.7
17.0
207.2
Appld
Matrls
44.5
Service
Corp.
-62.3
Prudential Sec.
5.3
14.8
145.6
Novellus
Sys.
39.5
XL
Capital-A
-17.2
Morg. Stanley D.W.
6.2
13.4
140.4
Diamond
Offshr.
34.0
McKesson
HBOC
-21.1
Salomon S.B.
7.1
13.3
149.7
Amgen
43.2
Saks
-28.5
Everen Sec.
10.0
10.0
161.4
Qualcomm
140.1
3Com
-47.7
U.S. Bcp. Piper
6.0
9.0
N.A.
ADC
Telecomm.
37.2
Sterling
Commrc.
-31.7
A.G. Edwards
6.5
3.8
230.1
Gillette
24.6
Albertsons
-14.3
Credit Suisse F.B.
3.5
-3.4
157.7
Micromuse
95.3
United Road
Svcs
-71.8
Merrill Lynch
0.0
-5.9
144.9
Elf
Aquitaine
18.9
Bergen
Brunswig
-23.4
Raymond James
-10.7
-18.6
136.0
CMG Info
Svcs
243.8
Travel Svcs
Int'l
-65.6
S&P 500 Index
5.0
18.5
220.7
*In latest quarter; holding period may be less than full quarter
N.A. = Data not available for full period.
Source: Zacks Investment Research
The Wall Street Journal survey of brokerage firms, done with Zacks
Investment Research in Chicago, is intended to give investors an idea of
how they might do if they use the recommended lists as a menu from which
to choose stocks, although no individual actually buys any firm's
recommended list in one gulp. Calculations in the survey take into account
capital gains or losses, dividends and theoretical trading commissions of
1% on each trade.
J.P. Morgan is included in this survey for the first time. The list of firms has
been revised to reflect recent changes in the brokerage industry, as well as
the need for space and production reasons to limit the number of firms in
the survey to 15.
Goldman, Sachs & Co., now a unit of Goldman Sachs Group Inc., was in
first place for the quarter, helped by EMC Corp., a Hopkinton, Mass.,
maker of computer-storage products, which gained 50.3%. Goldman also
had Morgan Stanley Dean Witter & Co. on its recommended list; the
stock had a 41.1% return in the first quarter. Greg Ostroff, managing
director, investment research, says the firm added "more and better-quality
tech stocks and financials" during last year's fourth quarter, and also moved
toward overweighting in consumer cyclicals.
But highflying tech stocks weren't enough for some firms to match the S&P
500. Raymond James Financial Corp.'s Raymond James Associates, St.
Petersburg, Fla., languished in last place in the survey. It had a negative
10.7% return in the quarter, despite a 244% gain on CMG Information
Services Inc., an Andover, Mass., Internet-marketing company. The
Raymond James recommended list was down 18.6% for the 12 months.
Raymond James's performance continues to suffer from its emphasis on
small-capitalization stocks, which have underperformed the overall market
recently, says David Henwood, managing director of research. But while it
has added some larger-cap companies to its coverage recently, Mr.
Henwood says, the firm doesn't plan to change its focus. "We don't want
to be like Wall Street firms," he says. "We still believe that if we're going to
add value, we can't be like everyone else."
Raymond James will benefit from an eventual broadening of the market,
Mr. Henwood says, adding that he hopes to increase analysts' coverage of
technology and energy stocks during the current quarter.
Going into the second quarter, Goldman's Mr. Ostroff says his firm is
"staying the course" and doesn't plan any major changes. "Tech is still a
good place to be, although we want to be somewhat selective," he says.
Goldman added Dell Computer Corp. to its list during the current quarter,
along with Williams Cos., a natural-gas provider that also has a
telecommunications business.
J.P. Morgan is making more changes. "We've increased our industrial
exposure and taken on an even greater global orientation," Mr. Cliggott
says. "Asia is improving now, Europe will improve in the second half of this
year and Latin America by this time next year." The firm removed both
Schwab and Morgan Stanley Dean Witter & Co. from its list in April and
added AlliedSignal Inc. and American Express Co.
Everen has taken Qualcomm off its list, as it reduced the technology
component to about 50% from about 65% of its list, adding restaurant,
energy and pharmaceutical stocks. "It was a judgment call," Mr. Henwood
says, acknowledging that Qualcomm's stock rose after the decision was
made. "The good news we were expecting all happened."
But he still favors technology overall. "We're changing the way we live. The
Internet is not a fad, it's going to go on for a very long time," he says.
|
