06/25/2004 12:00 am EST
Walter Frank, editor of MONEYLETTER, looks at two "unexpected buys" in the fund arena. While PIMCO is known for bond investing, he likes a PIMCO stock fund. And while he feels the Janus family should be avoided, he see one of their funds as an exception.
"PIMCO is best known for its fixed-income funds. Bit if the family keeps dishing up good performing stock funds like the PIMCO PEA Value Fund (PVLDX), managed by John Schneider, may soon gain a great reputation among stock fund families as well. For the trailing one-, three-, and five-year periods through March 31, 2004, the fund ranks in the top 2% of its Lipper category. At the most basic, the fund aims to invest in undervalued large caps that exhibit catalysts— factors likely to spark positive price performance. These can include management changes, sector or industry changes, hidden or undervalued assets, free cash flow generation, or favorable product cycles. The fund is also highly concentrated, as it generally holds only about 40 stocks. Schneider’s approach means he is sometimes ‘early’ to invest, and may have to wait out volatility before his picks pay off. The fund has recently reduced its stake in technology hardware and is focusing more on industrial firms which should benefit from an improving economy. Additionally, Schneider views the weak US dollar as the most important macro factor in management’s decision-making. In addition, following a number of years in which small caps outperformed, he now feels that large caps have lower relative valuations.
"Those who know that Janus Capital is under investigation for market timing might question why we are featuring Janus Mid Cap Value (JMCVX). But this fund has its own unique structure, as it is managed by Perkins, Wolf, McDonnell and Co., which managed the fund when it operated under the Berger Mid Cap Value moniker. In April 2003, the Berger funds were absorbed by the Janus family, and while Janus assumed the day-to-day business operations, management remained unchanged. Tom Perkins has managed the fund since its August 1998 inception. Jeff Kautz joined him in February 2002. Since inception the fund has returned 18.8% compared to 8.3% for the Russell MidCap Value index. The managers look for stocks trading at or near their historic lows. Companies should also be selling at valuations—based on cash flow, book value, or earnings— that are below their industry and their own history. Turnaround firms are targeted. Cash flow must be strong, and debt must be low. Perkins and Kautz don’t look to hit homeruns. Instead, they target firms they expect have average total returns of 8% to 10% annually over five years. Risk avoidance is very important to the strategy. Also, the fund tends to hold quite a bit of cash, recently 15% of assets. The fund’s largest sector weighting is in financials, which accounts for more than 20% of assets. The fund is overweighted in energy, with a 15% stake."