Updating Unusual Mutual Funds of ’95
Where are they now?
Mutual funds, like former classmates, can be easy to lose track of. The financial press has a tendency to play up its coverage of new types of funds, with less ink devoted to follow-up reports.
With this in mind, here’s an updated look at several unusual mutual funds that premiered in 1995 and were covered in this column during the year:
* Warburg Pincus Post-Venture Capital Fund. Few mutual funds, whether established or rookie, have fared as well as this one.
The New York-based portfolio premiered Sept. 29 with the aim of buying stock in embryonic companies that have received cash infusions from venture capital firms. The rationale was simple: Venture capitalists screen their picks carefully, investing only in those firms they figure are worth the money and effort. And once on board, they can provide managerial assistance that can prove instrumental in a young firm’s development.
Helped by a small-stock rally, the Warburg Pincus fund (no load, [800] 257-5614) is off to a great start. It recently traded above $17 a share, up from $10 initially.
Elizabeth Dater, a co-manager of the fund, continues to find attractive stocks in which to invest and says the approach is sound.
“Companies that venture capitalists emphasize come from some of the higher-growth, innovative segments of the economy, including the health-care, technology and business-services segments,” she says.
The fund is not restricted to small stocks, but that’s where Dater and her colleagues are finding the best values. She believes the current rally in small companies has a ways to go.
* Montgomery Select 50 Fund. This cream-of-the-crop portfolio holds 10 favorite stocks picked by five investment teams at Montgomery Asset Management in San Francisco.
“It’s a unique, compelling approach where we make big bets on the stocks on which we have the highest conviction,” says Andy Pratt, a portfolio manager at Montgomery.
The fund’s introduction was delayed a couple of months while Montgomery figured out how to ensure that the fund’s allocation would stay more or less evenly split among the five areas: large stocks, small companies, dividend-paying stocks, foreign firms and emerging-markets stocks.
The kinks have been worked out, and investors who bought near the fund’s initial price of $10 a share last fall have been rewarded: The fund (no load, [800] 572-3863) was up 35% from its debut through May 7.
Montgomery also unveiled a no-load Micro Cap Fund at the start of 1995, and investor response was so strong the company decided to close its doors to new cash within a month. This selection later reopened briefly but is closed again, its asset base having swelled to about $275 million. From its inception through May 7, it returned 47%. The fund buys shares in tiny companies.
* Focus Trust. This Philadelphia-based fund seemed to have found a sure route to investment success: Buy the same stocks favored by legendary investor Warren Buffett, then hang on for the ride.
And who better to shadow Buffett than Robert G. Hagstrom Jr.? He literally wrote the book on America’s most famous investor, titled “The Warren Buffett Way,” selling 500,000 copies to date.
But Hagstrom has found that it isn’t so easy to imitate a legend or beat the market. From its April 1995 inception, Focus Trust (1% redemption fee, [800] 665-2550) has returned about 17%, lagging the Standard & Poor’s 500 and other growth funds. Hagstrom admits to being overly cautious and having kept too much of the portfolio in cash. He has whittled an average 45% cash weighting in 1995 to 8%.
* African funds. A few regular mutual funds and closed-end portfolios got off the ground last year with the aim of buying stocks in one of the world’s last investment frontiers. These funds tend to have large stakes in South Africa’s stock market, by far the largest bourse on the continent.
In recent months, shareholders have benefited from higher prices for South Africa’s gold shares but have been hurt by a devaluation in the nation’s currency, says Grace Pineda, portfolio manager of the Merrill Lynch Middle East/Africa Fund ([800] 637-3863, maximum 5.25% load plus 2% redemption fee).
The Merrill Lynch portfolio, which premiered at the start of 1995, has gained about 10% since then. Another open-end fund, Calvert New Africa (maximum 4.5% load, [800] 368-2748) is off about 5% since it launched in April 1995.
Africa may someday become a favored destination of international investors with a speculative bent, but the timing at this stage appears premature, given the small sizes of these and other funds.
