Midyear Investment Review and Outlook : The Search for Growth : After a rough first half on Wall Street, where are the best profit opportunities in markets now? Here, four mutual fund managers explain their strategies. Interviews by Tom Petruno.
Kevin Wenck
Fund: GT America Growth,
San Francisco
Category: Small company
First-half return: +8.2%
Avg. small-co. fund return: -8.5%
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Kevin Wenck toiled in one of Wall Street’s killing fields in the first half of this year: the market for smaller-company stocks. Yet Wenck’s GT America Growth fund produced a gain of 8.2% for shareholders in the half, while the average small-company stock fund lost 8.5%.
His secret, Wenck says, isn’t much of a secret. “I don’t think I did anything notable,” he says of the first half. Rather, his philosophy--which has helped make the GT America fund one of the top 100 stock funds (of 2,100 total) in performance over the past five years--is simply “to invest in growth stocks, but only if they’re selling for very inexpensive prices” relative to earnings, he says.
That keeps him away from highly speculative small issues that can triple or quadruple overnight in wild bull markets. But it also means he avoids the devastation those stocks can suffer in down markets.
And unlike many stock fund managers, Wenck also is willing to sit with a huge chunk of cash in his $155-million fund if he can’t find issues that fit his specifications. Hence, his fund was 40% in cash as of March 1. As the market has tumbled since, Wenck has jumped back in, whittling cash down to 22%.
Lately he has been buying technology stocks such as semiconductor-controller maker Cirrus Logic and IBM software writer BMC Software, both of which have plunged 40% in the recent tech stock selloff. The market is focusing on a potential near-term slowdown in computer sales, but Wenck is looking ahead to later this year, when he expects new price cuts in semiconductors to fuel a fresh boom in computer sales.
Although he likes to root around in technology, Wenck says a more typical GT America stock is Haggar, the maker of low-priced mens’ clothing. The stock, too, is low-priced, Wenck says; it sells for about 12 times the firm’s most recent four quarters’ earnings per share, even though earnings grew 15% last year.
Conventional growth-stock wisdom is that a stock’s price-to-earnings (P-E) multiple should at least equal its growth rate. That’s wrong, Wenck says. “You don’t want to pay the growth rate--you want to pay something less,” he argues.
His portfolio, which also includes such names as computer disk-drive maker Seagate Technology and medical device firm Nellcor, carries an average P-E of about 15 now, he says. Yet he figures that the average earnings growth of his companies is 23%.
Just as important as knowing when to buy is knowing when to sell, Wenck says. If a stock rises to a level that he feels is plainly unjustified, he doesn’t stick around: “As soon as you cross the line to speculation, if you’re responsible you have to get out.”
