If you like keeping tabs on what's in your fund's portfolio and why its portfolio manager picks and sells the stocks he does, here's a transparent fund that's worth a peak.
In April, the Montgomery family of funds introduced the first of its Stock Solutions funds: the U.S. Select 20 Portfolio,( 800-572-3863) . Unlike other funds from that San Francisco-based fund family, it's important for Stock Solutions shareholders to have a computer with Internet access and an e-mail address. Why? Because via e-mail----and not snail mail-- is how the fund will communicate with its shareholders.
What's great about this new on-line fund is the vast amount of information that its shareholders have access to. In a nutshell, they'll be able to do everything from opening their account, to viewing the total portfolio, researching the individuals companies held in it, and more. (Interested investors can get a preview of the U.S Select 20 Portfolio by visiting the fund's web site, www.montgomeryfunds.com, and then clicking on Stock Solutions. If you're not a fund shareholder, don't expect to get to the real nitty-gritty on the fund. That information is available to shareholders only.)
The U.S. Select 20 Portfolio, however, isn't a totally open fund in which shareholders have a say in what's held in the portfolio and see real-time trade updates. Instead, this is a transparent fund in which shareholders can see but not touch as there is a two-week lag time in the posting of fund holdings/changes, and, fund shareholders are invited to comment but don't determine what's held in its concentrated portfolio. All portfolio decisions are left up to the pros at Montgomery.
"What we are trying to do is give as much disclosure as possible while at the same time, protect ourselves and maintain the portfolio's integrity, " says Heidi Khashabi, director of mutual funds at Montgomery. "Because at the end of the day, performance is what it's all about."Andrew Pratt has been portfolio manager of the U.S. Select 20 Portfolio since its inception. What follows is more on how he manages this focused growth fund that currently holds 28 names in its portfolio. Keep in mind, all concentrated funds carry more risk than non-concentrated ones:
Q: What do you like best about the fund?
Pratt: The idea was to create a diversified portfolio that consists of our best ideas. Then, because it's a concentrated fund, there will be a lot of leverage to those ideas. Meaning that, if a good idea turns into a good performing stock, because of the nature of the fund, you ought to get more returns out of it.
Q: Do you like the public being privy to what you're doing?
Pratt: Yeah, I do. I'm a shareholder in the fund and I always tell people that I enjoy hearing or reading the commentary that comes from the other portfolio managers of funds that I own. But with most mutual funds, you only get that information a couple of times a year. We have lots of interesting things to tell people about what we're doing,so I'm fully behind it.
Q: Tell me about some of those ideas?
Pratt: General Electric. It's our largest holding and this is obviously a fairly diversified medical, power generation, financial services, etc. company in which all of those businesses are doing quite well at this point. One of the more important parts of the company that we like is their power generation business.
We like a company called Converse Technology. It makes telecommunications equipment but specifically tailored to the wireless communications world and very specifically to the digital part of it. They have a great business in selling equipment that enables some of the services that you might enjoy on your cell phone. So, if you have a voice mail box on your cell phones, there's a very good chance that Converse made the equipment that enables you to have that.
Another company that I like is Compaq Computer. It's the biggest manufacturer of PC's in the world and yet has lost market share over the last few years. One reason (for that market share loss) was when Dell came in with its idea of direct selling, it eroded Compaq's model which was to sell through distributors----to buy a Compaq computer you had to go to the store.
Now they've made some changes in management and the company is transferring its method of selling to more of a direct model. Plus, the company has pretty much done what they said they were going to do for at least three or four quarters in a row.
Q: What's it take to get sold out of the portfolio?
Pratt: A company has to violate one of our tenants. We're always looking for companies that have a very visible growth plan over the next three years; we use a 3-year time frame for judging management; we're looking for reasonable valuations vs. the company's peer group; and positive business momentum.
Microsoft was owned in the portfolio early on and in one of their quarterly conference calls we learned about lower expectations in their sales earnings. That indicated that the business momentum we thought was there wasn't and we sold the stock. So selling it didn't have to do with the fact that they are having issues with the government. It was a business related decision.
|FUND:||Montgomery U.S. Select 20 Portfolio|
|SYMBOL:||not yet available|
|TOP HOLDINGS:||GE; AIG; Enro; Citigroup; and Pfizer.|
|TOP SECTORS:||Technology, 43.6 percent; finance, 13.9 percent ; capital goods , 10.5 percent; consumer services, 9.2 percent; and health care ,5.1 percent, as of Sept. 30.|
|PERFORMANCE:||Year-to-date through Nov.8 is up 9.60 percent. The fund is new this year.|
|MINIMUM INVESTMENT:||$1000 when using an on-line application.|
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