Perhaps reflecting higher investor expectations,
Portfolio Planners are taking an aggressive approach to the new year.
On the heels of last year's 85.6% gain for the tech-dominated
quartet of planners has increased their portfolios' allocations to technology and growth funds. And after a miserable 1999, in which the average general domestic taxable bond fund gained just 0.5%, some of the planners are shifting bond fund assets into such alternatives as floating-rate and convertible bond funds.
The planners ditched some longtime holdings, such as
Skyline Special Equities and
Clipper, which haven't lived up to past reputations. Lou Stanasolovich even dropped the venerable
Vanguard 500 Index fund from his
Family Values Portfolio
, reflecting a wider belief that the broad, large-cap benchmark is no longer setting the pace for investors.
"We're going to be in a rising interest rate market, and fund managers who are able to select those stocks that capitalize on certain sectors of the market will prove better than plain old indexes," he says.
One-year returns for the portfolios, which began life on Jan. 1, 1999 with a hypothetical $100,000, ranged from 15.6% to 28.2% for a year in which the
index returned 21%. But as we point out each quarter, the goal of these portfolios is not to beat any particular benchmark but to meet the needs of their fictitious owners. (To brush up on the ground rules, see our
introduction to the series.)
Of course, the four portfolios don't fit everyone's situation, so we occasionally ask one of the planners to suggest a makeover for a reader's portfolio. This time, Ron Roge of
R.W. Roge & Co.
in Bohemia, N.Y., offers some diversification alternatives to a recent retiree whose portfolio is plagued by overlapping investments.
To see how all the portfolios performed, see our
Scoreboard. Now let's take a closer look at each of the portfolios:
Unlimited Future Portfolio
This portfolio, designed by Roxanne Fleszar for an imaginary 28-year-old with a long investing horizon, rode two rocketing funds to a boffo fourth-quarter and a strong 28.2% return for the year.
Janus Twenty, a mainstay of the portfolio, gained 38.4% in the fourth quarter and finished the year up 64.9%. And
RS Emerging Growth, added to the portfolio just last quarter, surged 75.1% during the final three months of 1999.
The portfolio's returns were augmented by some timely tweaking at the end of October, when Fleszar reduced cash to 6% from 11% and added a percentage point or two to the allocations of each of her domestic equity funds.
For the first quarter of 2000, Fleszar is reducing cash a further 4%, and dumping Skyline Special Equities, a small-cap value fund that lost 13.3% last year. She's also adding Marty Whitman's $1.3 billion
Third Avenue Value fund.
"I like the fact that Marty Whitman is thinking a bit more outside the box" than other managers, says Fleszar. "He's a long-term value manager, but he went in and bought semiconductors when everyone hated them years ago."
Family Values Portfolio
Stanasolovich's portfolio, which returned 15.6% last year, gets a new look for 2000, with eight new funds. Among the additions is
Van Wagoner Technology, one of last year's top-performing funds. It's the first appearance of a pure technology fund in Stanasolovich's portfolio.
"It's kind of where the market is heading right now," he says. "I'm not looking to make a huge commitment, but I think it's probably appropriate for younger individuals or those who want to be more aggressive."
Also new is the tiny, $7 million
ICM/Isabelle Small Cap Value fund, which supplants Skyline Special Equities. And he's replacing
Acorn International, which returned 79.2% last year, and two other foreign funds with
Artisan International and
Federated International Small Company. "As good as Acorn has been, Federated has been even better," he says. The fund returned 126% in 1999.
In the fixed-income portion of the portfolio, Stanasolovich has dumped his municipal and high-yield bond funds and replaced them with
Liberty-Stein Roe Advisor Floating Rate
, a floating rate fund that he says will perform better in a rising-interest-rate environment. For more on floating rate funds, see a recent
Vern Hayden's portfolio also sports a new look for 2000 following a solid 21.7% performance in 1999.
He's dropped all but
Thornberg Value and
Janus Worldwide from the lineup.(For more on Thornburg Value, see Brenda Buttner's
latest column.) Among the outcasts:
Legg Mason Value Trust, which has outperformed the S&P 500 index for nine straight years -- another indication of the benchmark's diminished stature.
The new portfolio boasts an aggressive lineup of tech and telecom (
Firsthand Technology Value and
Warburg Pincus Global Telecommunications) and health/biotech (
Janus Global Life Sciences). Those categories now account for 40% of the portfolio's assets.
The portfolio has always had exposure to health care stocks through
Vanguard Health. But putting 20% of the portfolio into the Janus biotech fund is a big bet on the sector. "For the first time since 1991, it's being recognized as a real growth area," he notes.
Overall, the portfolio is "very aggressive," says Hayden, but he adds that he is responding to what clients are asking for "without being pulled off track."
Besides, he says, "if you're up a lot more you can fall further and still be ahead."
Golden Years Portfolio
Ron Roge's portfolio, which returned 21.9% last year, gets just a few tweaks for the first quarter.
Tweedy Brown American Value, which produced an anemic 2% return for 1999, is being replaced by
Artisan Mid Cap, representing one of the hottest sectors of the market.
"We'll get more growth in the portfolio" with the Artisan fund, he says. "We're figuring for the next six months, growth probably will continue to do better than value."
And on the bond side, Roge is replacing
Janus Flexible Income with
PIMCO Convertible Bond. The Janus fund's mixture of treasuries, junk bonds and mortgage debt "is not going to do that well in the next six months," he says, contemplating rising interest rates. But convertible funds, which buy interest-paying bonds that convert to common stock at maturity, "act a little more like equities," he says. For more on convertibles, see TSC's series,
Converts -- the Best of Both Worlds?
The TSC Portfolio Planners series aims to provide general fund and investing information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.