Could someone remind value shop
that this is the year of the growth stock?
Small-, mid- and large-cap growth funds were trouncing their value peers through Dec. 16, according to
. But you wouldn't know that by looking at Weitz's no-load stock funds.
The Omaha, Neb., firm's three all-cap value funds are dusting their average peers, and cash is streaming through the door. Today half of all fund firms are bleeding assets, but the $4.1 billion Weitz, founded by value maven Wally Weitz, has taken in $1.8 billion this year through Oct. 31, according to Boston fund-tracker
Financial Research Corp.
"For a firm that size, that kind of sales are dramatic," says Jim Folwell, a consultant with
They're even more dramatic considering that the
Hickory fund closed to new investors last year. The fund started 1998 with $20 million and closed eight months later with $500 million. Today the fund has more than $800 million.
"We've never seen inflows like this," says Rick Lawson, who manages Hickory and is in his ninth year with the firm. Weitz manages
Strain may be starting to show. Value and Partners Value had 15.6% and 23.5% cash positions on Sept. 30, according to Chicago fund-tracker
Lawson says the secret of the funds' outperformance is the firm's broader definition of value. Translation: The funds hold stocks they call value that others might call growth.
Although all the Weitz stock funds have significant (30% to 50%) bets on traditional value plays like financial services, they also have pricey telecommunications and media stocks like
Telephone & Data Systems
Liberty Media Group
in their top holdings. Both are returning more than 100% this year through Friday's close. But how does a value fund own Liberty Media, which sells at nearly 400 times its earnings?
"We're willing to measure value in different ways. Strictly buying stocks with low price-to-earnings ratios hasn't paid off this year," says Lawson. He says the firm has bought some expensive cable and media stocks that more traditional value investors wouldn't touch because it thinks the businesses will continue growing, making today's high prices a bargain. He says these growth stocks, not financials, have boosted the fund's performance this year.
Beyond performance, the firm's rising cash flows also coincided with its inclusion in
mutual fund supermarket.
Many fund companies would try to capitalize on this kind of sales momentum (see
Kinetics Asset Management
fund to build on the past success of its
Internet fund), but Lawson says the firm has no plans to launch new funds. How refreshing.
-- Ian McDonald
Vanguard to Launch Socially Responsible Fund
Following the money isn't just good advice for journalists. It works for mutual fund executives, too.
With cash pouring into socially responsible mutual funds, the
announced Friday that it will launch a socially responsible index fund of its own. The indexing giant has contracted with socially responsible fund shop
to develop a broadly diversified index for its fund. The result, the
Vanguard Calvert Social Index
fund, is expected to launch next year.
Socially responsible investing is something Vanguard has been considering for a long time, says spokesman John Woerth.
"We've been considering the idea for 10 or 12 years -- certainly for as long as I can remember," Woerth says. "But we've always wrestled with what companies are socially responsible and whether there was an appropriate benchmark."
Socially responsible funds aim to invest in companies that take a conscientious approach to how they affect their communities and environment. Often, these funds shun companies involved in tobacco, alcohol or firearms, or firms that are less than environmentally kind.
In recent years, investors have flocked to these funds, drawn by the index-beating returns many of them have been able to rack up.
Citizens Index, for example, is returning 22% this year through Thursday, compared with the 16.9% return of the
Vanguard 500 Index.
"The myth that investors have to sacrifice returns to invest responsibly has been busted in the last few years by the extraordinary performance of a lot of these socially responsible index funds," says Steve Schueth, president of the
Social Investment Forum
, a nonprofit trade group in Washington.
With those returns has come big money. Socially responsible mutual funds now have $154 billion in assets, according to the Social Investment Forum, up from just $12 billion in 1995. The number of socially responsible funds has grown as well, from 55 in 1995 to 175 today.
Another new addition to those ranks will be a socially responsible index fund from
, the massive teachers' pension system and financial services company. TIAA-CREF announced its socially responsible fund and several other new funds last week, raising the question of whether Vanguard is employing a me-too approach in announcing its fund now.
"The question is, are they responding to the TIAA-CREF plan, not only with a social fund, but with a low-cost one?" asks Dan Wiener, editor of the
Independent Advisor for Vanguard Investors
newsletter. As it expands its lineup of funds available to retail consumers, TIAA-CREF is increasingly seen as one of the biggest threats to Vanguard's unshakable grip on the low-cost fund market.
Woerth says the launching of the fund now has nothing to do with TIAA-CREF.
"It's pure coincidence," Woerth says. "Our clients, both on the retail and institutional sides, have been asking for a low-cost, passively managed offering of this type for a long time."
That coincidence announced itself very hastily. Vanguard hasn't yet filed with the
Securities and Exchange Commission
for its new fund, and the Calvert Group hasn't yet completed the construction of its index, which will include 1,000 companies.
-- Joe Bousquin
Look Ma, No Distribution
Monument Internet is up 274% over the past 12 months but isn't distributing any short- or long-term capital gains. How'd it do that?
"Well, just by holding on to stocks, because I'm always long-term-oriented. I usually try not to trade," says portfolio manager Alex Cheung.
Virtually every time a portfolio manager buys or sells a stock, the fund realizes a gain or a loss. At the end of the year, these are tallied, and if there's a net gain, it's distributed to shareholders, who then have to deal with the tax headache.
The fund's 103% turnover rate this year means Cheung has done some trading: The average stock fund's turnover rate is around 90%.
"It seems odd to turn the portfolio over, post that return and not have a gain. Obviously they sold their losers and let their winners ride," says Burt Greenwald, a mutual fund consultant in Philadelphia.
"For those people who would like to buy and hold, there might be a lot of volatility in between, but it's still the best way to make money," says Cheung. His approach has given shareholders the best of both worlds this year: a high return without tax complications.
But the fund is holding plenty of winners -- on Nov. 30, nine of its top 10 holdings were up more than 100% this year and the fund gained more than 90% in the first quarter, according to Morningstar. Cheung says at least one-third of the portfolio is unrealized gains.
That's a figure that warrants attention in the future. The
Amerindo Technology fund's
30% capital-gains distribution shows how painful winners can be down the road.
-- Ian McDonald and Joe Bousquin
New Marsico Fund
is rolling out a new fund, its first without founder Tom Marsico at the helm.
Senior analyst James Hillary will manage the
Marsico 21st Century
fund, which the firm hopes to roll out around the end of January. Marsico President Barbara Japha can't comment on the fund while it's in registration, but in the past she's noted the firm's plan to grow from within, molding its analysts into managers.
Judging from a filing with the SEC, the fund should be fairly similar to Marsico's others. It will be diversified, picking growth stocks in an all-cap strategy. Hillary has been with the firm since its founding in October 1997.
Since star manager Tom Marsico left
Janus Twenty to found his own shop, investors have welcomed him with open arms. In just over two years, the firm's assets
top $11 billion.
Time will tell if investors will get excited about a Marsico fund with someone else at the helm. The fund's expenses will be 1.72%, but the firm will cap them at 1.5% through Jan. 1, 2001.
-- Ian McDonald