After a year like this one, lots of investors feel like seeking professional help.
If not the analyst's chair, at least the counsel of a financial planner would help investors sift through the morass when putting money to work in 2001. Enter Gerald Townsend, a certified financial planner and president of
Townsend Asset Management
in Raleigh, N.C. For Townsend, the key to investing successfully in the coming year is focus.
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Townsend, who has been a financial planner for 20 years, favors well-managed, sharply focused funds that have the potential to outperform the broader market. He doesn't use index funds.
"Most portfolios are overdiversified; they own the whole market," says Townsend. "If all you want to do is mimic the market, that'll do it. But if you're trying to get any kind of returns, you can't own the whole market and do it."
So naturally, the mutual funds that Townsend favors have been those that focus on a narrow area of the market, such as the $2.6 billion
Marsico Focus fund. Managed by Tom Marsico, who ran the
Janus Twenty fund for almost 10 years, it invests in a portfolio of 20 to 30 large-cap companies. The fund's top holdings include information-storage builder
, biotech firm Genentech
Despite a strong track record, with total returns of 51% for 1998 and 55% in 1999, the fund has had a rough time of late, losing 18.5% this year, according to
. Still, Townsend is sticking with the fund because he likes its philosophy and manager.
Another fund going through a rocky period that Townsend likes is $3.3 billion
Invesco Telecommunications, which he started buying around three years ago. Although it is down 26.6% on the year, the fund has posted some impressive gains in the past, earning a three-year annualized return of 37.6% and a five-year annualized return of 31.2%, according to Morningstar.
"I still think highly of that fund," says Townsend. "I can live with the problems short term."
Indeed, most of Townsend's fund purchases are long-term plays. The planner says he spends a lot of time researching a fund and its manager's track record before he makes a purchase, so he usually feels comfortable enough to stay in for the long haul.
One fund that Townsend has been a big fan of for the past eight or nine years is the $2.3 billion
Manager's Special Equity, which invests primarily in small-cap growth companies. The fund is unusual because it uses four independent subadvisers who each manage separate portions of the portfolio and focus on different segments of the small-cap world. For example, one manager will invest in the value segment of the market while another will eye the more go-go growth names.
That multimanager strategy brings diversification that has helped the fund weather some volatile markets, giving it annualized returns of 1.1%, 15.8% and 18.5% for the one-, three- and five-year periods, respectively.
Another of Townsend's long-term holdings is the $1.7 billion
Third Avenue Value fund. The fund has an eclectic deep-value strategy and looks for bargains wherever they may be -- almost 19% of the fund is invested in foreign stocks like Japan's Tokio Marine & Fire Insurance
"It's a very strict value approach based on a lot of hard asset value," says Townsend. "That takes a little bit of patience. You wouldn't exactly call it a momentum fund. It's a buy-it-and-hold-it-for-quite-a-bit-of-time fund."
Of course, Townsend doesn't prescribe focused funds for all his clients, whose average assets average around $400,000. A client with an eye to retiring soon, for example, would be better served with more diversified mutual funds, he says.
For more aggressive investors, Townsend continues to scour the mutual fund world for attractive offerings. Although he doesn't have any money invested in it yet, he's intrigued by the $961 million
Dresdner RCM Biotechnology fund, which is run by physicians Faraz Naqvi and Michael Dauchot and has had an impressive gain of 81.5% this year.
With growth investments like Genentech and
, the fund is not for the faint of heart. But Townsend says investors with strong stomachs and long timelines might do well with about 5% of their assets in a fund like Dresdner Biotech.
"That particular area I think is an interesting area to have a little bit of a foothold in," says Townsend.