Fund Tops Charts Without Apple, Salesforce

BOSTON (TheStreet) -- The best-performing mutual funds with at least $1 billion in assets are dominated by high-flying, high-technology stocks such as iPad maker Apple(AAPL) and cloud-computing company Salesforce.com(CRM).

The Neuberger Berman Socially Responsive Fund(NBSRX) is doing just as well by investing in "medium-tech" companies that sell switches, electrical components and cables.

"We're old-fashioned ... stock pickers" who look for undervalued industry leaders with long-term growth prospects, said Neuberger Berman's Arthur Moretti, a fund manager since 2001 and the fund's team leader, in an interview. "We try to identify high-quality businesses and buy when they're inexpensive."

Managers aren't in hurry to reap profits. They're willing to hold a stock for three to five years, rare in a world where the phrase "the death of buy-and-hold" is widespread. The Neuberger Berman Socially Responsive Fund's annual turnover is 4%, meaning its holdings change completely every 25 years.

Those old-school values would seem to put the mutual fund at a disadvantage. And it's an unconventional fund to begin with, given its "socially sensitive" investment agenda.

The makeup of its $1.3 billion, 33-stock portfolio does little to dispel the idea that it's different than the marquee funds that can bump returns with "sin" stocks, such as alcohol and tobacco companies, as well as nuclear-power operators and weapons manufacturers.

But that hasn't handicapped the managers as there's a wide universe of companies left to pick from, said Ingrid Dyott, a Neuberger Berman fund manager since 2003.

And it hasn't hurt performance. The Neuberger Berman Socially Responsive Fund is up 21% this year, double that of the S&P 500 Index. It ranks ninth of the top-performing actively managed diversified U.S. mutual funds this year, and has been atop Morningstar's large-blend fund category ranking in eight of nine years.

Contributing to those results is fund managers' risk-averse stock-selection process. They seek firms that are leaders in their niche. "Historically, we've done well when the market is challenged," said Moretti.

The mutual fund declined 39% in 2008, less than most others in its large-cap category, and gained 31% last year.

Currently, there are only three losers in its top 25 stocks this year. The biggest is mutual-fund manager and discount broker Charles Schwab(SCHW), down 9.4%.

Fitting into the mold of "medium-tech" stocks is Danaher(DHR), an industrial manufacturer of electrical components and systems for use in electronic, medical and water-testing equipment and consumer goods.

"Its product cycles are more than a year, which is generally longer than that of a high-tech company," which makes its business less volatile, Moretti said.

That sounds bland compared to Apple, with its sexy musical devices, phones and tablets and God-like CEO Steve Jobs, but its shares are up 19% this year, reaching a 52-week high last week. (Apple has risen 52% this year.) And since it's the fund's second-largest holding, at 5.3%, and has been in the portfolio since June 2001, Danaher will offer a big payoff when it comes time to sell.

Another pick in the same mold is Altera(ALTR), a leader in the design and manufacture of programmable logic-device chips, for use by makers of communications, data processing, industrial and consumer products. It's the fund's largest holding, at a little more than 5.3% of the fund, and is up 69% this year. Take that, Apple.

The Neuberger Berman fund has owned Altera since 2004. It's still a core holding, Moretti said, because it's gaining market share from key rival while its forward price-to-earnings ratio is a low 15.3.

On the following pages are brief descriptions of the Neuberger Berman Socially Responsive Fund's five most interesting holdings. Investors can dive deeper to see if they're appropriate for their own portfolio.