Here are some new investments that those saving for or living in retirement might consider for their...
True Blue Growth
10/14/2008 10:45 am EST
Russel Kinnel, editor of Morningstar FundInvestor, and analyst Wenli Tan like a descendant of a blue-blooded fund family.
Brandywine Blue (BLUEX) is backed by one of the most seasoned teams in the category, and its unique and disciplined approach has rewarded long-term shareholders.
Bill D'Alonzo, who is also the fund shop's chief executive officer, has been leading the team of analysts here since the fund's 1991 inception. D'Alonzo and team also steer the fund's more famous sibling, Brandywine Fund (BRWIX). Both D'Alonzo and fund family founder and chairman Foster Friess have substantial investments in all Brandywine funds. D'Alonzo has served as lead manager since December 1998, when founder and chairman Foster Friess stepped down from this role.
This isn't your typical momentum-driven fund. For starters, its process relies on heavy fundamental legwork, not fancy quantitative models. A team of 31 analysts talks to companies' customers, suppliers, competitors, and industry experts. They focus on finding companies with near-term earnings growth that will likely exceed Wall Street analysts' expectations.
The team looks for companies whose earnings are increasing rapidly (preferably in the 20% to 30% range annually). D'Alonzo buys companies trading at a forward price/earnings ratio of 25x or less and sells soon after they hit their price targets. This disciplined approach has worked well under various market conditions. The fund not only participates in market up swings, but also limits losses in downturns. While its typical large-growth peer and the Russell 1000 Growth Index lost 13.2% and 12.3% in the year ending July 14, 2008, the fund lost 4.6%.
Management sidestepped the financials sector, where balance sheets lack transparency, and opted for energy and industrial companies such as Peabody Energy and Mosaic. The team sold the latter stock recently when it hit the team's price target. The fund also did a good job limiting losses during the 2000-02 bear market, when it fell half as much on average per year than its peers and benchmark.
This fund's boldness may cause short-term pain for shareholders. The team's decision to up its energy stake in the first half of 2008 has been costly as oil prices soon fell from peak levels, driving down the fund's energy picks. The fund has tumbled 32% for the year to date through September 2008, a loss severe enough to place it in the category's bottom decile.
But we think investors have good reasons to stay the course. The success of the fund's strategy relies on consistent stock-picking, and D'Alonzo and his team have delivered over the long haul. Despite its recent stumble, the fund's trailing five- and ten-year returns remain top notch.
This fund's 1.12% expense ratio is above average for no-load large-cap mutual funds. As a result of management's fast-trading style, the fund can hit shareholders with large capital gains distributions, which translate into hefty tax bills. Investors seeking a gutsy growth fund should take a look at this fund, [which is] better suited for tax-sheltered accounts.
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