last column, I explained how I make handwritten ledger entries every week on the performance of 421 mutual funds. I've been doing it for nine years, and it's my way of keeping a steady eye on the managers of those funds.
I promised that this week I would tell you how to build a model portfolio out of that pool of 421 funds, so I will. Let's start with the portfolio. It consists of six funds.
Before investing in these funds or any others, always read their prospectuses carefully. Also, be sure to look at past performance over one, three and five years.
This is a model for the growth part of a portfolio. If bond funds are needed for balance, they can be added. This kind of portfolio is for investors who have at least five years to keep their money invested.
In the portfolio, there are two load funds (funds that carry a sales commission),
Thornburg Value and
Hartford Midcap. While I get these funds for my clients without having to pay a commission, that may not be the case for you. If that's a problem, substitute with
Selected American Shares and
Artisan Mid Cap as worthy equivalents. Both carry no loads.
With the managers of these funds, I am not concerned about "style drift" -- the tendency to invest beyond the funds' stated focus. In my view, slicing and dicing managers into value, growth or blend categories is not a very productive undertaking. To put a tight bridle on managers and force them to fit into a predefined style box is myopic at best, and a futile academic exercise at worst.
When I invest in a fund, I believe the manager has the freedom to buy and sell his stock portfolio the way he wants to. I think it is wrong to second-guess a manager on any particular move. While I think it is important to have a general idea of the kinds of stocks or bonds a manager is buying or selling, I think there is an overemphasis on analyzing the particulars of a portfolio. Any manager, smart or dumb, makes mistakes. The smart ones obviously make fewer mistakes, but all managers are ultimately judged on performance.
This portfolio changes occasionally. The first change generally takes place in the percentage allocated to each fund. For instance, if I think technology is going up, I will allocate more to Kevin Landis'
Firsthand Technology Value. I pulled back this year from 15% to 10% on Mark Yokey at
Artisan International for obvious reasons -- foreign stocks are not doing well.
Some of the portfolio is very risky and volatile. During that dark period from March 10 through April 14, the depths of the
crash, you would have lost 16%.
If you had invested in this portfolio at the high on March 10, you would have come back about 13.8% through Oct. 30, but would still be underwater. Even so, I would still hold on and give the portfolio time to season. By seasoning, I mean holding long enough for each fund to perform. On the other hand, if you were in this portfolio from Jan. 1, you are up 16.7%.
The weekly entries I make in my mutual-fund logbook serve as an indispensable tool in identifying the winners. It was not my purpose in this column to discuss the managers or funds in great detail. It was primarily to focus on the process I use to put together a model for a growth portfolio. I would welcome your feedback on what you like or don't like about the process and the model.
Vern Hayden is a certified financial planner in Westport, Conn. He is a financial consultant and advisory associate of Financial Network Investment Corp. He also is an owner of Hayden Financial Group. His column is not a recommendation to buy or sell stocks or to solicit transactions or clients. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While he cannot provide investment advice or recommendations, Hayden welcomes your feedback at