Strategies of the Big Funds’ Managers
Each quarter, a few stock mutual fund managers score big hits and get a lot of publicity. More often than not, however, they are three-month wonders. The real power in the industry is exerted by the huge funds that got that way by consistent--if unflashy--performance. Here’s how managers of four of the biggest funds described their current strategies:
Jeff Vinik
Fidelity Magellan Fund, Boston
Assets: $20.5 billion
Year-to-date gain: 1.7%
Vinik, who took the helm of the nation’s largest stock fund in July, has since cut back its holdings of drug, tobacco and food stocks. And he doubts he’ll return to those consumer stocks soon. “They were the winners of the ‘80s, but I think the consumer is losing purchasing power, and so those companies are losing pricing power,” he says.
In place of the consumer-goods stocks, Vinik has bet heavily on airlines, energy, utilities and semiconductors--businesses that should benefit quickly from even a mild pickup in the economy.
But Vinik says an overall investment “theme” for the ‘90s still escapes him. “My task is to find the winners of the ‘90s, and I’m not sure what they are yet,” he admits.
He does see one potential long-term theme if the much-discussed but still elusive capital-spending boom finally materializes. Foreign firms could fuel such a boom by locating more new plants in the United States, Vinik suggests. “We have the lowest interest rates and cheapest currency in the world. If you’re going to set up a manufacturing plant, we’re the best place to do it.”
David Tripple
Pioneer II Fund, Boston
Assets: $4 billion
Year-to-date gain: 3.3%
Tripple says it’s reasonable to be worried about the struggling economy, and the implications for stocks if business doesn’t improve next year.
But he also believes many investors have become too gloomy. “If you want to keep your eyes open for anything now, it’s for a sign of hope,” he says.
He has structured his fund to straddle both the bull and bear cases for ’93. For example, 17% of the fund is in high-dividend utility stocks, which should hold up even if the economy slides. Utilities also are “a long-term assumption that good yields are going to be harder to come by,” Tripple says.
He has 28% of the fund in industrial stocks that would gain from an economic recovery. His favorite industrials are small- and mid-sized firms that could rocket if rediscovered by recovery-minded investors--stocks such as crane maker Harnischfeger and Goulds Pumps.
Since 1980, many heavy industries have gone through such shakeouts that they now have only a few key players, Tripple notes. So if business turns around, he figures a lot of Wall Street money will be fighting to get into a relatively few stocks.
Richard Fentin
Fidelity Puritan Fund, Boston
Assets: $5.6 billion
Year-to-date gain: 10.7%
Despite an overall weak economy this year, some industries have fared well, Fentin notes. Natural gas suppliers and heavy truck makers, for example, experienced healthy sales and thus better earnings. Fentin owned stocks in both of those groups.
In the ‘90s, “You have to pick the groups that are going to get the (sales) volume,” he says simply. Looking to next year, Fentin is betting that heavy-industry companies such as Caterpillar (tractors), Avnet (electronics) and W. R. Grace (chemicals) will get the volume, thanks to better economic growth.
Even if he’s wrong, Fentin reasons, the industrial stocks are cheap enough now that at worst their share prices will remain flat. And because his fund is 45% invested in bonds, it will earn a sizable interest return even if the rest of the portfolio that is invested in stocks goes nowhere, he says.
Meanwhile, as foreign markets have tumbled, Fentin has boosted foreign issues to 10% of his total stock holdings. “There’s a lot more value in those foreign markets that have gone down,” he says.
James Dunton
Washington Mutual Investors Fund,
Los Angeles
Assets: $9.5 billion
Year-to-date gain: 5.4%
Dunton’s fund is part of Capital Group, a money-management firm that takes a very long-term view of investing. Whatever happens to the economy and stocks in the short term, Dunton says, the key long-term trend is toward slower growth and lower stock returns.
“All of the major industrialized countries that we look at show the same (trend)--an aging population,” Dunton says. That will mean slower consumer spending and thus a more difficult sales environment for many companies compared to the ‘80s, he says.
Instead of the 18% annual returns of the ‘80s, Dunton says stocks are likely to at best return 7% to 9% annually in the ‘90s. If that’s the case, he says, you may as well guarantee yourself at least half of that return upfront by owning high-dividend stocks--which is why his fund is heavily invested in energy stocks and electric and phone utilities.
What he doesn’t own: Autos and other manufacturers of big-ticket consumer items. With consumer spending slowing, he says, “The bigger the size of the discretionary purchase, the bigger the risk.”
