BOSTON ( TheStreet) -- Who better to take investment cues from than some of the highest-rated mutual fund managers around?
Their buying habits should provide some direction for investors trying to decide how to play the shaky market this year after a bang-up first quarter and the desultory results since then.
According to a report Tuesday by fund-rating firm Morningstar, the first-quarter activities of the 26 top mutual fund managers it tracks in its Ultimate Stock Pickers series "tells us that our managers were anticipating an end to the run-up in the markets" so they built up cash to meet potential redemption requests, and perhaps also to keep some powder dry for future purchases if the market regains some semblance of normality.
And that conservative stance came during one of the strongest first-quarter performances for the S&P 500 in over a decade when it returned 12%. The index has since lost ground and is now up 5.7% on the year. Morningstar's analysts sift through the quarterly reports of these elite funds it tracks in order to identify their top new buys, sells or changes to existing positions. Big new buys catch the eye, of course, since they impart a greater degree of confidence in a stock on the part of a fund manager. "New-money purchases provide us with the most insight into what our top managers think are the most attractive buying opportunities, as portfolio managers tend to put money to work in new names only when their purchase decision carries a very high degree of conviction," Morningstar says. The firm also tracks what it calls "high-conviction" purchases, which represent fund managers' additions to already existing holdings in funds. They are of slightly less significance since "it is far easier for managers to put money to work in holdings they are already comfortable with than it is for them to make a bet on a name that is new to the portfolio," Morningstar analyst Greggory Warren wrote. The biggest new additions by the Ultimate Stock Pickers in the first quarter, which are based on the percentage of the portfolio they represent, are an eclectic bunch, so there's no sector bet for an investor to follow. The new buys include a company that makes chemical salt for use in de-icing roadways in Compass Minerals International (CMP), the nation's second-largest trash collector in Republic Services (RSG), as well as one of the hottest stocks of the past decade as a harbinger of the Internet revolution in on-line retailing in Amazon (AMZN - Get Report). And, finally, the Asia-focused casino-resort builder Las Vegas Sands (LVS) helps round out some of the managers' top new picks. Some of the more notable "conviction buys," that is, fund managers' additions to existing portfolio positions, include Parnassus Equity Income Fund's (PRBLX ) new purchase of snack and beverage firm Pepsi (PEP), while the closely followed $8 billion Yacktman Fund (YACKX) followed suit such that Pepsi was its single-largest holding at the end of March at just over 9% of the portfolio. And in a curious move, the $8 billion Fairfax Financial Holdings ( FRFHF), a Canadian reinsurance and stock investing firm that is on the Morningstar list, bumped up its stake in the troubled BlackBerry smartphone maker Research In Motion (RIMM) such that at the end of the first quarter, RIMM made up 19% of its portfolio. Research In Motion has also been a favorite of the Yacktman Fund, but it is now just under 1% of the portfolio. Among the distinguished members of the 26-member Ultimate Stock Pickers roster include: John Gunn, who manages Dodge & Cox Stock (DODGX), and Warren Buffett's Berkshire Hathaway (BRK.B). Here are 10 stocks that Morningstar's "Ultimate Stock Picker" fund managers initiated positions in during the first quarter, ranked in inverse order of analysts' "buy" ratings: