There's nothing more difficult than a promotion that drops you into the former seat of a mutual fund manager who has wowed his shareholders with blockbuster returns for the last two years.
Welcome to the spotlight, Stephen Pesek.
Pesek, 40, was named last week as the new manager of the $5.3 billion
Massachusetts Investors Growth, a
MFS Investment Management
fund that has averaged annual returns of 44% over the last two years.
Pesek replaces Chris Felipe, who resigned last week, along with colleague John Brennan, to start a hedge fund. Pesek also runs another fund Felipe managed,
MFS Strategic Growth, along with MFS software analyst Irfan Ali.
Few mutual fund companies have ridden the large-cap stock wave like MFS. The firm trailed only
in attracting new investment money last year, thanks mostly to Massachusetts Investors Growth, known as MIG, and
Massachusetts Investors Trust, commonly called MIT. Together the funds pulled in more than half of MFS's net cash inflows.
Felipe's success at MIG was propelled by his fund's large-cap growth mandate and his own style of concentrating portfolios. MIT, managed by Kevin Parke and John Laupheimer Jr., returned 40% last year, more than 11 percentage points better than the
, and 48.1% in 1997, besting the S&P 500 by nearly 15 percentage points that year.
Meanwhile, Pesek was running a large-cap growth fund with a lower profile at MFS. His $386 million
MFS Large Cap Growth fund was earning solid, though not spectacular, returns while Felipe's star rose. Pesek's fund returned 32.3% last year and 24.6% in 1997.
"The mistake I've made in hindsight is not owning all the top 10 market caps," he says. "They seemed so expensive to us. My top 10 holdings do not line up with the S&P top 10."
Even so, don't expect any radical changes now that Pesek is stepping up to the bigger and more closely watched MIG. "There is a very high degree of name overlap in the funds right now," he says.
Pesek likes health care a little more than Felipe does and is bit less comfortable with concentrated portfolios. One bet he does like: the MIG play on cable companies. Expect no changes there.
"If Chris had a 6% weighting in a top name, I might have 5%," said Pesek. "Historically, that's where my style is different from his."
Pesek worked as an analyst at Fidelity Investments straight out of business school before joining MFS as an analyst covering drugs and electronics. He got his chance to manage MFS Large Cap Growth two years ago.
American Home Products
among his favored health care stocks. MIG has about 24% of its money in technology stocks, down from nearly 29% last September but still slightly more than the weighting in Pesek's old fund.
"Near term, we're a little more cautious than we have been," says Pesek. He said MFS analysts and managers are concerned about expensive tech stock prices, worried that year 2000 issues could create a temporary sales lull and fretting that corporate spending on technology could get hit as profit growth slows.
But technology isn't getting squeezed out of the MIG portfolio. Pesek singles out
as stocks both he and Felipe favor.
Both Pesek and Felipe bought into an MFS strategy of playing cable stocks.
are featured stocks in both funds.
Pesek gave up some potential return at his old fund by not buying many of the most expensive large-cap stocks. That caution is unlikely to change, and he thinks it could be a plus if the market tide turns on the most expensive large stocks.
"My stomach tells me we have to revert to the mean, low-double-digit returns," he says. "These have been fabulous years, but much of it has been multiple expansion and interest rates. Rates seem to be going up. I'm a little more sanguine about the prospects of the market."
Numeric Over the Long Haul
Numeric Investors and John Bogle Jr., the firm's recently departed managing director, took issue with our column
last week on its mediocre 1998 fund performance.
Their beef: One year is too short a period to measure, and we should report their life-of-fund returns. That's not exactly our point of view. But to be fair, here are the life-of-funds annualized returns for Numeric funds:
n/i Numeric Investors Growth and Value, 22.48%;
n/i Numeric Investors Large Cap Value 10.75%;
n/i Numeric Investor Microcap, 24.95%, and
n/i Numeric Investors Growth, 10.85%.
Heebner's In and Out Lists
Love 'em or leave 'em: Either Ken Heebner likes a stock or he doesn't. Heebner is famous for loading up on favored companies in his
CGM Capital Development fund and dumping others that no longer interest him.
It was the same story in the second half of 1998, as detailed in the fund's recently filed annual report. Here's a few of the highlights, changes that each account for at least 4% of the fund's $703 million in assets.
Delta Air Lines
Steven Syre & Steve Bailey write for the Boston Globe. This column is exclusive to TheStreet.com. Under no circumstances does the information in this column represent a recommendation to buy stocks or funds.