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Large-Cap Winners

by Thurman Smith

In the below discussion GROWTH POTENTIAL is a measure of relative up-market performance, RISK EXPOSURE is a measure of relative down-market performance, and ISQ is a measure of reward to risk. The norm for all is 10. Data is as of February 16th.

With small- and mid-cap funds stealing the limelight lately large-cap 
funds have not had much attention. Below are large-cap funds of various median capitalizations that have been competitive recently and boast good growth and reward/risk readings. Not surprisingly, value predominates. 

Large-cap Alpha Analytics Value (AVFAX) delivered an annualized total return of 30% in its first two years, over four times as much as its peers. Manager Brian Barish of Cambiar Investors, Englewood Colorado, follows a strategy that includes identifying attractively-valued companies that are fundamentally improving, but where this improvement may not be externally obvious. The median market cap of $16 billion is in the low end of the large-cap range. Net assets are an attractively small $5 million. Investors looking for a large-cap value vehicle and who can handle market risk should consider this offering. 

Gabelli Blue Chip Value (GABBX) has been a leader in the large-cap class for all of its first year and a half. Barbara Marcin favors established firms that have performed well in the past, are temporarily out of favor, and for which there is some catalyst that will return the company to a much higher valuation. That is not an unfamiliar approach, but she really makes it work. No sector is more that twice its proportion in the S&P 500 and assets are well spread out over fifty-six issues. In spite of its good record and being a member of a well-marketed fund group, total net assets have only reached $25 million. Its low Tax Impact makes this offering a candidate for any portfolio.

Excelsior Value & Restructuring (UMBIX) ranks in the top percentile among large-cap value funds for the last five years and over its eight years it posted a seven percentage point advantage. Not surprisingly it was sidelined in 1999's growth rally, but has bounced back in the new value-friendly climate. Manager David Williams looks for companies that have missed quarterly earnings estimates or are in the midst of reorganization. Traditional value areas are just one source; he has more than usual exposure to technology and telecommunications. Thus the fund was affected more than other value funds in last year's correction. But performance has benefited from mergers and acquisitions like Donaldson, Lufkin, & Jenrette, which was acquired by Credit Suisse Group. So we could describe this offering as large-cap value with a bit of spice, including 8% in foreign issues. A low tax-impact makes it a good choice for any portfolio that can take on a market-risk holding.

Super low-risk Ameristock (AMSTX) is good at keeping shareholders out of trouble. Over its five and a half years it has provided an annualized total return of 24.3% vs. 16.5% for the market. Like other value funds it was eclipsed in the growth mania, but has since resumed its premium over the S&P 500. In all but 1999 it exceeded its large-cap value peers. Nicholas Gerber looks for bargains in the larger of the large, often in the wake of short-term bad news. Its average P/E is 60% that of the Wilshire 5000. A low turnover (31%) and Tax Impact (1.0) help too. Conservative investors who won't fret if it doesn't keep up with the indices every year might find it to be a useful core position. I assume that Gerber will not be distracted by his new Focused Value fund.

American Eagle Capital Appreciation (AECAX) is a dynamic vehicle that will do about anything to bag big gains and avoid big drops. So far there is nothing close to it: since launch at the end of 1999 it has almost doubled. Because the fund is out often out of synch with the market to net good effect its growth potential and risk exposure measures are both understated, but its ISQ of 16 is meaningful. The Jundt team, father and son, use all stock trading strategies available, so it is not surprising that it is very tax-inefficient. Almost all its twenty-five issues are in tech, services or healthcare. There are usually some short positions and derivatives in play. While this fund is best for qualified plans it is not possible to use it with a broker-custodian as one must buy direct. One would have to move part of an existing broker-custodied plan to a like account with the fund. 

Vanguard U.S. Value (VUVLX) gained in every one of its first seven months except November. Since inception at the end of June, U.S. Value has gained 16.8%, which is quite favorable against a loss of 10.8% for the market over the same period. Its perhaps overly diversified portfolio of 386 issues has a price-to-book value ratio half that of the market. It would be convenient if it were available at more brokerage services, but then the moderated cash flows from lack of brokerage investors will both keep assets (now $90 million) under control and make it easier to manage. 

The risk stats have improved at Fidelity Export & Multinational (FEXPX) since Douglas Chase took over a year ago. Despite a 44% weighting in technology it gained slightly last year. A clue lies in the portfolio's new valuation measures that suggest a switch to a blend of growth and value from pure growth. This fund specializes in firms that derive over 10% of sales from exports or that have substantial activities in more than one country. Not surprising for a Fidelity offering, its net asset are a hefty $502 million. Investors with a Fidelity account who can accept its market-level risk should consider it, preferably for a tax-deferred account as its Tax Impact is moderate.

Copyright © 2001 Thurman Smith. All rights reserved. Thurman Smith is an asset manager in Boston specializing in growth funds and editor of Equity Fund Outlook, a monthly subscription newsletter that rates over 250 growth funds on the basis of management skill. Equity Fund Outlook is highly rated by the Hulbert Financial Digest. For information about Equity Fund Outlook and a low-cost trial subscription visit www.efoutlook.com, call 800-982-0055, or send a post card to E.F.O., P.O. Box 76-B, Boston, MA 02117.

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