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Let the pros pick your stocks
Why struggle to find great stocks when top-rated mutual funds post their holdings online? Here are 5-star funds that share timely information.
By Harry Domash
That old adage advising us to work smarter, not harder, is good advice when it comes to stock-picking. Why spend your weekends searching out good stocks when you can get mutual fund managers to do the work for you?
Besides, its their day job, they are more tuned into the buzz than we are, have better computers, and they employ squads of analysts to grind the numbers.
You can ferret out the picks of the best fund managers by looking at their portfolios. Many funds display their top 10 holdings on their Web sites, but alas, theres a big catch: In most cases, the information is several months old. Apparently, most fund managers believe that its better to disclose their holdings later rather than sooner.
Funds are required only to disclose their portfolio holdings semiannually, but many do it quarterly. But dusty, musty quarterly data just doesnt do the job for those of us who want to look over fund managers' shoulders for their latest wisdom.
Say a fund buys a stock in October. Most funds wouldnt report that December-quarter transaction until February. By that time, the fund may have dumped the stock.
But there's good news: A few funds disclose their top 10 holdings as of the close of each month, making them available just a few days later after month's end. That information is timely enough to use.
One caveat, though: Not all mutual funds are created equal. Some are better stock pickers than others. To find the best of the bunch, let's turn to Morningstar, which rates mutual fund performance with stars. The best performers in each category get five stars, and the worst get only one star.
Here are five-star rated mutual funds that list their top 10 holdings within a few days of the end of each month. Ive listed them in alphabetical order by fund family. Usually, the fund data is easy to find from each fund familys home page. If it isnt, Ive included instructions on how to navigate the site.
Buffalo Funds
Buffalo Funds operates a family of seven funds. It publishes the top 10 holdings of each of its funds around the 10th of the following month. Currently, only its best-known fund, the Buffalo Small Cap (BUFSX), is rated five stars.
Morningstar classifies Buffalo Small Cap as a growth fund, but its top holdings always look like value picks to me. Consequently, both value and growth investors might find stocks of interest here. With a 22% average annual gain over the past five years, Buffalo Small Caps returns are impressive. However, recent management changes cast doubt on the funds ability to keep up that pace.
John Hancock Funds
John Hancock Funds operates dozens of funds covering just about every category. Hancock updates each funds top 10 holdings a week or so into the next month. Finding fund information is tricky on Hancocks site. From its homepage, select Mutual Funds, then Individual Investors and, finally, Open End Funds. Currently, Hancock has two five-star funds.
Hancocks Classic Value A (PZFVX) fund invests mostly in large-caps that it considers undervalued. But unlike many value funds, Hancock doesnt avoid tech stocks. When I looked, the top holdings included Hewlett-Packard (HPQ, news, msgs) and Computer Associates (CA, news, msgs), along with more traditional value picks such as Boeing (BA, news, msgs) and Whirlpool (WHR, news, msgs). Hancocks strategy seems to be working. The fund returned 15% on average over both the last three-year and the last five-year periods.
John Hancocks Global Leaders Growth A (USGLX) should provide large-cap growth investors with plenty of ideas. The fund follows a classic growth strategy: It picks stocks that have leading market shares in their industries, have recurring revenue streams and own well-established brands. Unfortunately, that strategy hasnt fared well in recent years. First, startups took center stage in the bubble days. Then, the economy collapsed, and large-cap growth stocks floundered. Consequently, Global Leaders' flat three-year and 2% five-year returns, although better than the market, wont knock your socks off. Now, thanks to the strengthening economy, the outlook for large-cap growth stocks looks much better.
Munder
Munder is probably best known for its Munder Net Net fund, one of stars of the late 90s that crashed and burned when the bubble burst. But Munder actually operates many other funds.
Mid-cap growth investors should find plenty of ideas on Munders MidCap Select (MGOAX) funds top 10 list. The portfolio includes stocks in a variety of industries. When I checked, consumer services accounted for the heaviest weighting, followed by financial services, health care and business services. The fund, started in mid-2000, racked up an 8% average annual gain over the past three years compared with a 4% loss for the S&P 500 index ($INX) during the same period.
Thornburg Investment Management
Thornburg Investment Management runs a growth fund, a value fund and several bond funds. In addition to promptly listing each funds top 10 holdings, Thornburg also provides an in-depth description and rationale for buying all of its funds stocks, not just the top holdings.
Morningstar rates the Thornburg Value (TVAFX) fund at five stars. The funds name is misleading. Its mostly large-cap portfolio contains some traditional beaten-down value-priced stocks, but it also includes many growth stocks. According to the funds literature, these stocks, which include the likes of E*Trade (ET, news, msgs), qualify for the portfolio because the fund manager expects them to grow at an above-average rate. Morningstar classifies the fund as large blend. Bottom line: Both value and growth investors looking for large-cap stocks should check out the Thornburg Value top 10 list.
Turner Investment Partners
Turner Investment Partners operates 15 growth, value and industry-specific stock funds. Turner is fast, posting its new top 10 lists just a couple of business days after the end of each month. Get to each funds data by selecting Individual Investors on Turners home page.
Turner currently has only one five-star fund, Turner Micro Cap Growth (TMCGX), but its a winner. The funds returns averaged 16% and 34%, respectively, over the past three years and five years. Small-cap growth investors should find plenty of ideas, since, despite the name, the funds portfolio contains mostly small caps.
Vanguard
The Vanguard Group discloses each of its funds top 10 holdings as of the end of each month, usually by the fifth business day of the following month. The easiest way to get to each funds data is by selecting Research Funds & Stocks on Vanguards home page, and then entering the funds ticker symbol into the search box. Vanguard currently has three five-star funds suitable for providing stock ideas.
The health-care sector seems perpetually to be a hotbed of good stock ideas. Vanguard Health Care (VGHCX), run by the same manager since its inception 20 years ago, has returned 20% annually, on average, over the past 10 years, outpacing all other health-care funds tracked by Morningstar. However, the funds top 10 holdings are almost exclusively large-cap pharmaceuticals, so you wont find many hot small-cap growth ideas here.
Some experts, seeing tight oil supplies down the road, advise adding oil stocks to your portfolio. Despite its name, Vanguard Energys (VGENX) portfolio is all about oil. Although the portfolio includes drillers and other service companies, the emphasis is on big oil, and thats mostly what youll find in its top 10 listings. The fund returned around 18% on average annually over the past five years, a period when the S&P 500 essentially broke even.
Vanguard Wellington (VWELX), a value fund with a penchant for dividend-paying stocks, is a good resource for investors looking for large-cap value ideas in a variety of sectors. The fund returned more than 6.5% annually, on average, over the past five years. However, a new manager took over last year, so the historical record may not mean much.
Ive found mutual fund portfolios to be an abundant source of stock ideas. But, theres no site that lists all mutual funds that publish their portfolios on a timely basis. The companies I listed here I found more or less accidentally. Please advise me of any additional funds you know of that do the same thing.
At the time of publication, Harry Domash owned or controlled shares in the following equities mentioned in this column: Vanguard Energy Fund. He does not own short positions in any stock mentioned in this column.
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