AboutWarren Boroson Expertise Author of "Keys to Investing in Mutual Funds" (Barrons), "Ultimate Mutual Fund Guide" (Probus), "How to Pick Stocks Like Warren Buffett" (JKLasser), and "The Reverse Mortgage Advantage" (McGraw-Hill). Former financial columnist for Gannett News Service.
Experience Author of 20 books; winner of 1996 Personal Finance award from Investment Company Institute and Washington University. Formerly on staffs of Money and Sylvia Porter's Magazine. Had a radio program (on WEVD) about mutual funds and a newsletter, FundDigest.
Question Thanks Warren! I actually called the Marsico Funds and they said they have a flexible definition of growth, meaning they don't stay in growth stocks per se all the time, as in 2000 when they dramatically cut tech stocks despite the growth manager label. I agree with you very much that I need more balance between Growth and value, and thank you for the excellent fund choices. My follow up question, though, is that while Value Stocks have outperformed over long-term, I have also seen studies showing stocks with the highest ROEs have been the best performers and also from Zacks Investment Service that stocks that consistently beat their eps estimates every quarter are the best performers? Who's right here? 2nd follow up I promise--are the Fidelity Funds simply "too big for their britches" after years of dramatic growth. I didn't check the size of the Value fund you suggested, but I always heard that's something to watch. Thanks for your expertise.
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Followup To
Question -
I think one of the best fund managers in the world is Tom Marsico out in Denver. They manage 4 funds, Focus, Growth, 21st Century and International. 2 questions: 1. If I put all of my retirement assets in a combination of these 4 funds, would that be enough diversification for me long-term? I know the 21st Century Fund and Intl Fund aren't run by Tom Marsico himself, but the same process is applied I'm sure. Question 1 summary: I have 50% Focus, 25% 21st Century and 25% Marsico Intl Opps Fund in my retirement account and I'm a young investor with a long time horizon--can you think of any better mutual funds in those categories that I should consider instead of the Marsico choices? 2. If you look at Marsico's record vs. the S&P500 since his days at Janus going back to the early 90s, he has averaged about 400bp over the market/year net of mutual fund fees (or pretty close to that),..yet many academic types would dismiss this as luck--do you think Marsico can continue to beat the market over the long-term (assumming he doesn't retire and try the PGA tour!) Thank you sir
Answer -
Dear Michel Fox:
I agree with you--Tom Marsico is as good as they get. I conducted a poll around 10 years ago, and he emerged as one of the top portfolio managers in the land (when he worked for Janus). Good interview, too!
But...
Your portfolio is out of whack. You have no value funds, and value stocks, over the years, have outperformed growth stocks and with less volatility. Granted, it's time growth stocks finally started enjoying their days in the sun after underperforming for so long.
Marsico International is fine. A growth fund, though. You might balance it with Dodge & Cox International, a foreign value fund.
Focus and 21st are not quite identical twins. Fraternal twins. Their top holdings overlap a lot: Qualcomm, UBS, United HealthCare, GE, P&G, Genentech, and so forth.
To check whether two funds are similar, look at their R squareds--to see how closely they follow their most similar index, in this case, the Wilshire 4500. Focus gets a 77. 21st, a 76. (You can find the numbers in Morningstar Mutual Funds, available in libraries.)
You don't necessarily have to sell any shares of Focus or 21st. But build up positions in U.S. value funds.
Possibilities: For small caps, Third Ave Small Cap Value. For large caps, Fidelity Large-Cap Value.
Do consider my advice.
Best,
Warren
Answer Dear Michel:
As Max Heine once said, many roads lead to Jerusalem. A high return on equity is a good clue that a company's stock is worth buying. So are low p-e ratios and low price-book ratios. So are earnings surprises. Persistent earnings surprises might indicate that a stock is undervalued--or that it's a growth stock selling relatively cheaply.
Yes, funds that get a lot of money tend to underperform. The managers may have to buy larger-sized companies...or put money into stocks that are not that cheap...or buy their less-favorite stocks...or keep more money in cash.
But...
Michael Price once told me that when a lot of money came into his funds, he was able to hire another analyst--who could find new, good, undervalued stocks that his funds could buy.
Also, Morningstar found that value funds didn't necessarily suffer when they became larger and larger. After all, the definition of a value stock is that investors don't recognize that it's a bargain. So these cheap stocks remain cheap. Until, it is to be hoped, investors in general wise up.
