Meritocracy can be worth a lot of money.
Marketocracy Masters 100 fund, run by Ken Kam, is up 11.4% so far this year, 60 basis points better than the
. Kam, however, can't take sole credit for the fund's outperformance. The fund's distinctive model offers him a lot of help in picking winners.
Kam recruited over 55,000 people to manage over 65,000 model portfolios at his Web site
marketocracy.com. The fund managers in turn compete for the highest returns. All the while, Kam tracks, analyzes and evaluates their virtual trading activity in order to find the best performing stocks, which he then cherry picks for the mutual fund. According to Kam, the top managers are rewarded with research contracts based on the fund's assets under management, currently $41 million.
"It's a unique model that allows us to identify the best managers in a quantifiable manner," says Kam, in a recent
Street.com TV interview. "Then we pool the best ideas into a single fund. I guess it's best described as a meritocracy."
Since the fund's stock selections are culled from its numerous online managers instead of a benchmark or investing style (like growth or value), Kam refers to it as a "go anywhere fund." As a result, the fund's character tends to migrate. For instance, the fund's current make-up is heavy on mid-cap growth stocks, specifically energy, biotech and tech names, as those sectors have rallied since the start of the year. Last year, the fund relied mostly on small-cap names.
Due to its go-anywhere approach, one might quibble with using the large-cap S&P 500 index as a benchmark. Long-term investors, however, don't have much to complain about. Over the past three years, the Marketocracy Masters 100 portfolio has returned an average of 16.5% per year, 2.5 percentage points above the index. The fund has returned an average of 17.3% annually over the past five years.
is one of the fund's largest holdings at 3.25% of assets. Kam says that the refining giant is represented across a wide swath of the portfolios he oversees.
"Valero is a great indicator of Wall Street's interest in oil," says Kam. "Irrespective of price, Valero is benefiting from the shortage of refining capacity."
The fund also maintains a comparatively large position in
. Kam says he added to the position recently when Wall Street's credit crunch unjustly caused Mastercard's shares to dip.
"People think it's a credit card company, but Mastercard holds no credit card balances," says Kam. "The banks that issue the cards hold the balances so it sold off unfairly."
Kam concedes that a decline in consumer spending will hurt Mastercard since it gets its revenues off transactions. However, he does not forecast a recession coming "for at least a year, due to the
As for Kam, his objective in the next year is to keep discovering great managers via his virtual community and eventually start more funds.
"This is just our first fund and it's proven that the model works," says Kam. "I guess you can say we want to share the benefits of 'Marketocracy.'"
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.