OppenheimerFunds QUEST BALANCED VALUE
Finding a fund that hasn't had a down performance year since its inception isn't easy. Then, add a portfolio manager who has been at the helm for all but the first year of the fund's existence and you've got a combination worth looking into.
When it comes to balanced funds---those that invest in both stocks and bonds---the OppenheimerFunds Quest Balanced Value Fund has a formidable record. Colin Glinsman has been the fund's portfolio manager ever since 1992, and says the reason for the fund's success has a lot to do with flexibility. "The cumulative numbers are really good and that's a testament to the flexibility of our philosophy which is, we look at the whole market without a lot of bias about where we're going to find value."
Glinsman, a research analyst before becoming a portfolio manager, believes that the market is always creating opportunities whether you're a growth or a value investor. He likes holding only a few stocks in the fund's portfolio, typically 20 to 25, and keeps the fund's asset allocation relatively close to where it is now---60 and 65 percent of in stocks; cash about 10 percent; and the balance in bonds.
Here's more about how he manages the fund:
Q:When you signed on as portfolio manager, what did you bring to the fund?
Glinsman: The philosophy that I brought was that it's a balanced fund. So its volatility, with respect to the market, is moderated by the fact that it has both stocks and bonds. Therefore the correlation of the fund to the market is not as strong as an all equity fund because the bonds act as kind of a ballast.
Right from the beginning, we felt comfortable taking large stock specific risks and concentration risks with the equity portion of the fund because we consider one primary skill is stock picking.
Q: This is a value fund. Value means different things to different portfolio managers. How do you define it?
Glinsman: The way we define value is not in the traditional statistical valuation where everything is kind of cheap. In our view the key determinant is whether things are cheaper than they should be. Which means, sometimes you can have pretty expensive looking stocks in the fund but our opinion they are very high quality companies that should be even more expensive.
Q: Could you give me an example?
Glinsman:CVS, the drugstore company. It's one of our top 10 holdings and has a price earnings multiple that's at or above the market level.
Q: So it might be considered rich to other value managers?
Glinsman: Right. But, from our point of view, the quality characteristics of the company are so much higher than that of the average company ---both in terms of their business position and the quality of business opportunity they have over the next decade---that the correct value valuation on it is actually much higher than its current one.
One of the real appeals of the company is that they kind of have two businesses in one. They have the pharmacy business, that has all the growth characteristics of the pharmaceutical business without the research and development risks attached to it. Then, all the other stuff that goes into making the store.
Q: How about another holding?
Glinsman: The largest one in the portfolio is Freddie Mac. In this case you have a stock that actually has a below market valuation but, in our view, has both above market quality and growth potential. So in this case, this stock is trading in the high 60s and we think the correct value is in the 80s.
Q: I know you look for intrinsic value. What does that mean?
Glinsman: Well, when we look at Freddie Mac, for example. we look at all the business characteristics that it has like the management record, what we think can happen over the next three to five years, etc. Then we do a set of computations to come with what we think would be the price you would pay for that to just to get an average return and that's what we would call intrinsic value. It's the price where the stock is correctly valued.
Our theory is that in the short-term, there is a lot of noise in the marketplace. There is a lot of emotion that can cause stocks to be either overvalued or undervalued vs their intrinsic value. And, if we do the computations correctly and apply our judgment correctly, we believe that the market then figures these things out and moves the stocks toward their intrinsic values.
Q: Who is this fund ideally suited for?
Glinsman: If you were only going to have one fund, this one would be for someone who is looking for a good return but is at that point in their life where they don't want to have 100 percent of their portfolio in stocks wanting some safety from bonds. But, they need to be aggressive enough that they are willing to take some risks on a concentrated portfolio of stocks.
OppenheimerFunds Quest Balanced Value Fund:
|FIVE HOLDINGS||Freddie Mac, SBC Communications, Kroger, MacDonalds and Fleet Boston.|
|PERFORMANCE||Year-to-date through June 13, up 9.52 percent. At year-end 2000, the fund was up 7.9 percent; in 1999, up 11.2 percent; and 1998, up 28.2 percent.|
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