In a Stock Picker’s Market, 10 Fund Managers Who Shine

The “stock picker’s market” that people have been talking about for years is finally here. No longer can you guarantee hefty returns simply by chasing the latest momentum stocks or technology heavyweights. To make money these days, you have to do your homework.

If you want to leave that work to a professional, this column offers up some ideas: 10 mutual fund managers who have consistently proven their mettle as stock pickers.

Their strategies differ, but most managers in this group are performing better than the major market indexes so far this year--in many cases, vastly better.

What’s more, each of the 10 boasts a three-year performance that ranks in the top third, or higher, of their fund category.

The group ranges in style from low-key Bill Nygren of Oakmark Select Fund, who favors “value” stocks such as Washington Mutual (ticker symbol: WM) and Office Depot (ODP), to the high-octane Garrett Van Wagoner, who remains focused on tech and can be a rapid trader.

The 10 were chosen from across the spectrum of market capitalization (small, medium and large stocks) and investing style (growth, value and “blend”).

Here’s a look at each manager, listed alphabetically:

* Glen Bickerstaff, TCW Galileo Select Equity:

Since Bickerstaff took over in June 1998, this large-company-growth fund has taken flight. Though Select Equity is up modestly in 2000, it is handily beating the blue-chip Standard & Poor’s 500 index, as it did in 1998 and ’99.

That’s no shock to shareholders who have stayed with him: Bickerstaff also shined at Transamerica Premier Equity fund, which he managed before going to TCW.

Select Equity is a focused fund that owns only about 30 stocks. The risk, therefore, is that a few company bombs could jolt the portfolio.

Yet Bickerstaff uses a “top down/bottom up” approach: He seeks companies that have a proprietary edge but also the ability to benefit from major economic trends.

The fund has been heavy in tech, with holdings as of Sept. 30 including Dell Computer (DELL) and Siebel Systems (SEBL); biotech stocks such as Amgen (AMGN) and Genentech (DNA); and insurance issues such as Progressive Corp. (PGR).

* Nick Gerber, Ameristock:

Gerber’s semi-concentrated portfolio, which holds about 50 stocks, was headed by financial names such as PNC Financial (PNC) and Allstate (ALL) at the end of the third quarter, along with issues such as Sara Lee (SLE) and Dow Chemical (DOW)--often derided as dull “old-economy” names.

But there’s nothing dull about the fund’s record: Gerber, who has run the large-cap-value fund since its 1995 launch, has notched annualized returns of 23.3% over the last five years, and the tax-efficient fund is up 16.2% this year through Friday.

With just $113 million in assets, Gerber has done all of this quietly.

* Ross Margolies, Salomon Bros. Capital:

Margolies is the Eddie Murray of fund managers. Like the ex-baseball player--who could be counted on to bat .300 with 30 homers each season--Margolies has been Mr. Consistent: His fund gained 26.4% in 1997, his first full year; 23.7% in 1998; 23.1% in 1999; and about 19% so far in 2000.

Margolies and his team look for out-of-fashion growth stocks as well as more traditional deep-value names. Assessing any stock comes down to a simple question, he said: “At this price, is the risk/reward ratio good? We don’t worry so much about who’s going to beat earnings estimates next quarter. We want to know who’s going to win the long-term competitive war.”

Margolies said Costco Wholesale (COST), which plunged in spring after issuing an earnings warning, typifies the sort of competitive advantage he seeks.

“You can see why they are growing globally. They have the lowest prices on stuff like that 15-pack of Bounty I always get, but they also create excitement with stuff that isn’t there for long. If you see a wine you like, you better buy it quickly, and they have these awesome beach chairs, but only for six weeks--if you wait till July they’re sold out.”

* Bill Miller, Legg Mason Opportunity:

If the 1980s were the decade of manager Peter Lynch and Fidelity Magellan, the ‘90s were the era of Bill Miller and Legg Mason Value Trust, a large-cap fund that has beaten the S&P; 500 for a record nine straight calendar years--apparently going on 10.

But Value Trust has swollen to nearly $12 billion in assets, and too much cash can eventually weigh down even the craftiest managers.

Miller’s Legg Mason Opportunity Trust, however, is a mid-cap fund launched at the start of the year, and now holds about $1 billion. It may be starting a Value Trust-like streak of its own: It’s up 6.8% this year, through Friday.

Though in recent years Miller was considered a big risk-taker for a value manager, the eclectic manager has built Opportunity Trust’s concentrated portfolio with an odd mix of about two dozen names, including Amazon.com (AMZN) and the unglamorous Tupperware (TUP) and trash hauler Republic Services (RSG), as of June 30.

* Bill Nygren, Oakmark Select:

Want a picky stock picker? With only about 20 names in his fund, Nygren has built what Scott Cooley, analyst at Morningstar Inc., calls “arguably the best concentrated fund around.”

Concentration brings risk, of course, and another danger could be Oakmark Select’s size: At $1.8 billion, it might be tough for Nygren to stay nimble. But his fund, launched in late 1996, has shellacked its average mid-cap value peer each calendar year, and this year is up 19.5%.

Financial stocks such as Washington Mutual, up 67% this year, have boosted returns. Nygren recently added beaten-down Office Depot to the portfolio, noting that its retail stores and online unit are profitable, even in a tough retail market.

* Kevin O’Boyle, Meridian Value:

This $137-million fund, lead-managed by O’Boyle since mid-1995, has returned an annualized 28.6% in the last five years, ranking in the top 1% of Morningstar’s small-cap-blend category (“blend” funds hold a mix of growth and value stocks).

Unlike the herd of managers who shun companies that report disappointing earnings, O’Boyle screens for firms that have stumbled in recent quarters but possess strong catalysts for a comeback, Morningstar noted in a recent report.

Holdings at the end of the third quarter included Hyperion Solutions (HYSL), which makes enterprise software; Haemonetics (HAE), which makes blood-processing systems; and Wolverine World Wide (WWW), which makes Hush Puppies and other shoes.

* Jim Oelschlager, Red Oak Technology:

Oelschlager is best known as the skipper of White Oak Growth, a large-cap fund that has reaped annualized returns of 30.5% in the last five years.

All three of his funds are beating the S&P; and their average peer year-to-date, as usual. But the 16.5% gain by the all-tech Red Oak, through Friday, is especially impressive considering how badly the tech sector has tanked. At $1.5 billion, Red Oak also is far smaller than White Oak.

As of Sept. 30, Red Oak’s 25 holdings were topped by networking, data-storage and communications-chip stocks such as Juniper Networks (JNPR), Ciena (CIEN), Network Appliance (NTAP) and Broadcom (BRCM).

As a sector fund, this one is sure to be volatile. But given the buy-and-hold nature of the man some call “Goldschlager,” it also is likely to remain tax-efficient--meaning low annual capital-gains payouts.

* Andy Stephens, Artisan Mid Cap:

This $441-million growth fund is young, but check out the numbers: Under Stephens, Artisan Mid Cap gained 33.4% in 1998, its first full year; 57.9% in 1999; and is up 28.9% year-to-date. If there’s a bear market going on, nobody told Stephens.

He pays closer attention to valuation than most growth-stock managers, notes Morningstar, and takes profits when stocks reach his price targets. That has limited the fund’s downside volatility.

As of Aug. 31 the portfolio included energy stocks such as Kinder Morgan (KMI) and Weatherford International (WFT); Fiserv (FISV) and SunGard Data Systems (SDS), which handle data processing and other services for financial firms; and circuit-board maker Viasystems Group (VG).

* Garrett Van Wagoner, Van Wagoner Mid-Cap Growth:

All five of Van Wagoner’s funds have whipped most of their growth-fund peers in recent years. Of his three funds still open to new investors, Mid-Cap Growth is the smallest, at $310 million--and it has held up best this year, losing 6.8% so far.

Though Mid-Cap Growth, like all of Van Wagoner’s funds, can be a wild ride, Morningstar calls it “a thing of beauty when it’s on a roll.” The fund has returned an annualized 30% in the last three years.

Van Wagoner’s team relies on fundamental research--meeting with company managers, for example, and going to trade shows in an effort to find innovators.

“It’s not complicated, just time consuming,” Van Wagoner says.

The fund has focused on tech and biotech issues lately, but Van Wagoner said he might buy more consumer stocks in the future if their growth prospects are robust enough.

He recently rejected Krispy Kreme Doughnuts (KREM), saying sales growth at established stores is too slow.

“They’re basically just building out a chain. It’s a good doughnut, but a glazed doughnut is a glazed doughnut. I’m not going to drive out of my way for one,” he said.

* Buzz Zaino, Royce Opportunity:

Boniface “Buzz” Zaino is more than just a pretty name. This small-cap-value manager could make a big name for himself at this rate.

Zaino, who took over Royce Opportunity in April 1998, steered it to a 5% return that year, strong for its category. He then produced a 32.3% return last year, and it is up 21% so far this year.

Zaino, who has been an analyst or money manager for 32 years, pays strict mind to valuation and diversification, buying stocks with low prices relative to book value, sales and earnings, shopping from a mix of industries, and, unlike the focused-portfolio crowd, rebalancing to keep individual holdings to 1.25% or less of the portfolio.

He scours trade journals like Chemical Week and Women’s Wear Daily to spot trends, and he thinks his research will keep paying off.

“In a slowing economy there will be even more opportunities for earnings accidents, and those momentum players who don’t pay attention to valuations will get hurt,” Zaino said. “It’s especially true with smaller companies, where so many things can happen--you just can’t overstate the importance of diversification. When accidents do happen, they won’t destroy our portfolio.”

*

Josh Friedman can be reached at josh.friedman@latimes.com.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Proving Their Mettle--Again

These 10 stock mutual fund managers have managed to beat their relevant broad market indexes this year, in the most difficult market overall since at least 1990. Garrett Van Wagoner, heavy in tech, has lost far less than the Nasdaq composite index.

*--*

YTD* YTD* Fund Total Percentile rank (800) Manager/fund name category return in category telephone Andy Stephens/ Artisan Mid Cap MG +28.9% 1% 344-1770 Kevin O’Boyle/ Meridian Value SB +28.1 2 446-6662 Buzz Zaino/ Royce Opportunity SV +21.0 12 221-4268 Bill Nygren/ Oakmark Select MV +19.5 23 625-6275 Ross Margolies/ Salomon Bros. Capital MV +19.1 2 725-6666 Jim Oelschlager/ Red Oak Technology ST +16.5 2 462-5386** Nick Gerber/ Ameristock LV +16.2 3 394-5064 Bill Miller/ Legg Mason Opportunity MB +6.8 36 577-8589 Glen Bickerstaff/ TCW Galileo Select LG +3.5 9 386-3829 Garrett Van Wagoner/ Van Wagoner Mid-Cap Growth MG -6.8 67 228-2121 S&P; 500 index -6.1

*--*

Fund categories: MG=mid-cap growth; SB=small-cap blend; SV=small-cap value; MV=mid-cap value; ST=specialty technology; LV=large-cap value; MB=mid-cap blend; LG=large-cap growth. Categories determined by Morningstar Inc.

* through Friday

** area code is 888 rather than 800

Source: Morningstar Inc.