Can you ever really have enough tech in your portfolio?
That's been some investors' and portfolio managers'
attitude over the past couple of years, and those who have loaded up have been rewarded. The tech-heavy
is up more than 270% over the past two years, beating the return of the
by a cool 240 percentage points.
But what if the market turns around? This week, investors had a
late-week affair with the
, and if that keeps up, the extra helping of tech that's boosting your portfolio today could send it tumbling tomorrow.
Last week, we showed you funds that had ratcheted up their tech weightings the most over the past three years. This week's Saturday Screen looks for U.S. stock funds that have quietly performed well with an
in tech stocks.
We've screened nonsector domestic stock funds for those that rank in the top 25% of their peer groups over the past one- and three-year periods; have had the same manager for at least three years; are open to new investors; and have a tech weighting below 20%, according to the most recent public portfolio data.
Here are the top 10, ranked by three-year average annual return.
Some names you know, many you don't. As usual, we'll start at the top.
If you're looking for a way to avoid an outsize tech bet,
Heritage Capital Appreciation might not be your first choice. That's because the large-cap-blend fund has about half of its assets bet on the "services" sector, according to
That might sound pretty low-tech, but it's often code for a fat bet on telecommunications and media stocks, many of which sport tech valuations and volatility.
A little digging shows that's probably the case here. The fund's top three holdings,
AT&T Liberty Media
Clear Channel Communications
, represent almost 15% of the fund's assets. Clear Channel sports a price-to-earnings ratio of 307, compared with 37.3 for the S&P 500.
Still, if you're looking for tech-light funds that won't be changing their stripes, you might be smart to look at some of the maverick managers on the list, according to Morningstar analyst Russ Kinnel.
"I think you've come up with some good ones here, some iconoclasts that are off on their own," he says.
One intriguing pick is an obscure fund that we noted in a previous
Excelsior Value & Restructuring. Manager David Williams looks for companies that are reconfiguring their business and have a cheap stock price. The fund's average price-to-earnings ratio is just a little over half that of the S&P 500. This type of value approach has been out of favor, but Williams has managed to beat the S&P 500 in all but one calendar year since the fund's inception at the end of 1992.
Kinnel's favorite is
Gabelli Westwood Equity, run by lead manager Susan Byrne since its inception in 1987. Rather than look strictly at valuations, Byrne looks for stocks with earnings surprises that Wall Street analysts are ignoring. That singular view has helped her beat her average large-cap-value peer over the past one-, three-, five- and 10-year periods. (One of the few value funds she consistently trails is Excelsior Value & Restructuring.)
Her approach also has led to an eclectic portfolio with an overweighting in utilities but a top holding such as
, which currently has a price-to-earnings ratio hovering near 170. The fund's average price-to-earnings ratio is higher than that of many rivals, but well below that of the S&P 500.
Robert Torray and Doug Eby, co-managers of the
Torray fund, also chart their own course with a more concentrated style. The pair typically have only 30 stocks in the portfolio, focusing on companies with beaten-down stocks but solid management and a catalyst for growth. These days, that's led the all-cap fund to an overweighting in health care and financials.
It's not often the pair add or sell a stock, illustrated by the fund's low 26% turnover rate, which is less than half that of the average fund. They've ridden that stubborn style to a 26.3% average annual return over the past five years. That beats 98% of their large-cap-value peers.
One other maverick manager who just missed our list is Ron Muhlenkamp, who typically tries to position his
Muhlenkamp fund ahead of consumer spending trends. That can lead to big sector bets and higher volatility than in other value funds.
But it paid off last year when Muhlenkamp bet on an uptick in sales of luxury goods, and he rode investments in recreational-vehicle makers and airlines, as well as
, to an 11.4% return, beating more than 65% of the fund's mid-cap value peers. The fund's 16.9% return over the past 10 years beats 92% of its peers.
If you're after the least risky choice on the list, take a look at
Olstein Financial Alert, where manager Bob Olstein scrutinizes company accounting statements to come up with his own valuation based on a company's cash flows. When he finds a solid company selling for less than he thinks it's worth, he considers buying it.
Olstein limits volatility by not allotting more than 3% of the fund's assets to any position. His approach has kept pricey stocks out of the portfolio and returns high. The fund's price-to-earnings ratio is about half that of the S&P 500 and its 24.4% average annual return over the past five years beats that of 98% of its peers.
The fund's weak spot is its 2.25% expense ratio, which is much higher than its average peer's 1.43%.
So, there you have it, a few funds that haven't followed the crowd into tech stocks and have managed to maintain a solid track record. Clearly, there's no telling when these funds will take off, but as this week's Dow's resurgence proved, you never can tell when the spotlight will leave tech stocks.