Hocus Focus: Remember That Downside to Focused Funds?
If less was more a few years ago, it certainly seems like it's less again.
(JAVLX)Janus Twenty that kept their holdings lists short and their tech bets high roared ahead of more diversified growth funds. As a result, investors and fund companies came down with focused-fund fever -- lest we forget, Janus Twenty, with some $25 billion in its coffers, is closed to new investors. It makes sense that we got comfortable with inordinate risks during a period of inordinate returns. After all, the S&P 500 posted five straight years of at least 20% gains for the first time ever from 1995 through 1999. But as we approach the one-year anniversary of the tech-laden Nasdaq Composite's March 10 peak -- and that benchmark is at two-year lows -- let's take a look at how these home-run funds are holding up. As you might expect, those muted voices that predicted a steep drops to match these funds' steep gains are ringing true. The upshot is that these funds' current woes aren't necessarily reason to dump them, but if you're aiming for a diversified portfolio, their current tumbles show why you should probably view them as sector funds and limit them to around 10% of your stock portfolio. "Concentration will pay off big when it works, but be prepared for the other side too," says Phil Edwards, managing director at Standard & Poor's fund research unit. "It's not a bad thing or a good thing, but it's something you need to understand when you're building your portfolio." It's not easy to single out focused funds. Despite their popularity, they don't have their own category, even though they're high-octane styles typically make them a distinct from their "peers." Since they often have big bets on relatively few stocks, they tend to stick with big-caps that they can trade more easily than less liquid small- or mid-caps. To pull together a representative bunch, I sifted the big-cap growth fund bin for funds with more than $100 million that launched since 1995. Then I sifted that pack for funds with 30 or fewer holdings. I also trolled for funds with "focus," "20," or "twenty" in their names and invested as advertised. This left me with 14 big-cap growth funds to use as a benchmark. They hold some 30 stocks each, on average, and have more than 55% of their money in tech stocks, according to Morningstar. As you might imagine, carrying a portfolio with big bets in the tech sector hasn't been a positive experience lately. These funds are down 16.5% this year and have lost almost a third of their value over the past 12 months, on average. This compares with a 5% and 6.3% loss for the S&P 500 over the same periods.| How Do You Like Me Now? These big-cap growth funds' narrow and techy tastes are hurting them. Nearly all lag their average peers this year and over the past 12 months. | |||
| Focused Fund | YTD Return | 1-Year Return | 3-Year Annualized Return |
| (BFOCX)Berkshire Focus | -38.4% | -59% | 30.3% |
| (MAFOX)Merrill Lynch Focus 20 | -33.6% | N/A | N/A |
| (WOGSX)White Oak Growth Stock | -18.8 | -20 | 15.4 |
| (SGRTX)Strong Growth 20 | -17.1 | -33.8 | 27.9 |
| (PASGX)Phoenix-Engemann Focus Growth | -16.7 | -37.5 | 4.9 |
| (UMLGX)Excelsior Large Cap Growth | -16.3 | -28.3 | 13.3 |
| (JAVLX)Janus Twenty* | -14.5 | -39.7 | 14.4 |
| (PLCPX)PBHG Large-Cap 20 | -13.7 | -37.4 | 27.2 |
| (MFOCX)Marsico Focus | -12.5 | -23.7 | 15.3 |
| (NFEAX)Nations Marsico Focused Equity | -11.9 | -22.9 | 15.5 |
| (GFOAX)GAMNA Focus | -11.2 | -24.8 | N/A |
| (JCGAX)ASAF Janus Capital Growth | -10.8 | -35 | 12 |
| (SSFAX)Style Select Focus | -8.3 | -26.8 | N/A |
| (TEQUX)Transamerica Premier Equity | -7.5 | -20.9 | 8.3 |
| Avg. Peer | -10.2 | -21.6 | 9.7 |
| S&P 500 | -5 | -6.3 | 8 |
| Source: Morningstar. Returns through Feb. 22. *Closed to new investors. | |||
| Their Best Ideas On average, these stocks have lost almost a third of their value over the past 12 months, compared with a 6.3% dip for the S&P 500 | |||
| Stock | % Assets in Focused Big-Cap Growth Funds | Number of 13 Funds Listed Above Owning Shares | 1-Year Return |
| EMC | 5.6% | 12 | -28.2% |
| Cisco Systems | 4.7 | 12 | -57.3 |
| Sun Microsystems | 3.2 | 9 | -52.6 |
| Corning | 3 | 9 | -50.2 |
| Nokia | 2.6 | 6 | -53.1 |
| Citigroup | 2.5 | 8 | 26.1 |
| JDS Uniphase | 2.3 | 7 | -71.5 |
| Nortel Networks | 2.1 | 9 | -64.9 |
| America Online Time Warner | 2.1 | 7 | 65.2 |
| Juniper Networks | 2.1 | 5 | -40 |
| Totals/Averages | 30.3 | 10.5 | -32.7 |
| S&P 500 | 10.3 | N/A | -6.3 |
| Sources: Morningstar and Baseline/Thomson Financial. Holdings as of most recent portfolio reports. Performance through Feb. 22. | |||
| How You Would Have Done |
| 100%: (VFINX)Vanguard 500 Index | 80%: (VFINX)Vanguard 500 Index 20%: (JAVLX)Janus Twenty | |
| Volatility | ||
| Best Quarter | 22.1% | 23.1% |
| Worst Quarter | -13.1 | -16.1 |
| Best Year | 52 | 53.2 |
| Worst Year | -9.1 | -14 |
| Source: Morningstar. Returns through Jan. 31. | ||
The Junk Pile
If you had any lingering doubts about growth funds' reliance on the tech sector, you can put them to bed. Over the last week, tech funds were the worst-performing fund category with a 14.9% loss, according to Lipper. The three worst-performing diversified fund categories were mid-cap growth funds, all-cap growth funds, and big-cap growth funds, which lost 9.1%, 8.8%, and 8.5%, respectively. Apparently, focused funds aren't the only growth fare that gets a cold when the tech sector gets pneumonia.>To order reprints of this article, click here: ReprintsTheStreet Premium Services For Personal Service: 877-471-2967
Jim Cramer's Action Alerts PLUS:
Trade right alongside a Wall Street pro — enjoy access to his Charitable Trust portfolio and be sent trade alerts BEFORE he makes a move. Learn MoreETF Profits:
Get money-making ideas from the hottest investment vehicle on the planet. Our experts show you how to play various ETF sectors to help pump-up your portfolio. Learn MoreOptionsProfits:
Get 50+ trade ideas a week from the industry's top options experts. Plus — exclusive commentary on market trends and essential trading tools. Learn MoreReal Money:
Our team of professional Wall Street Pros — including Jim Cramer, Doug Kass, and Nicholas Vardy — delivers intelligent analysis, timely trade ideas, and colorful commentary. Learn MoreStocks Under $10:
Break into the market with small- and mid-cap stocks... all $10 or less! David Peltier tells you exactly which low-priced stocks he's buying and selling. Learn MoreTo begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
blog comments powered by Disqus
| Dow Jones | S&P 500 | NASDAQ | 10-Year Note | |
|---|---|---|---|---|
| 12,801.23 | 1,342.64 | 2,903.88 | 19.69 |
Oil *
117.67
|
|
DOWN
89.23 |
DOWN
9.31 |
DOWN
23.35 |
DOWN
0.78 |
10 Yr
1.97%
SPDR Gold
167.14
|
|
-0.69%
|
-0.69%
|
-0.80%
|
-3.81%
|
Data delayed 20 minutes |

Connect with TheStreet