Mutual funds that concentrate their bets on a handful of stocks are all the rage these days. As more fund companies become frustrated by their inability to outrun Standard and Poor's 500-stock index, the rush is on to create new focused funds.
"Our objective is to outperform the market, and the easiest way to do that is to run a concentrated portfolio," says Jim Oelschlager, who manages White Oak Growth Stock.Ken Gregory, publisher of No-Load Fund Analyst newsletter, adds: "Most stock pickers have a limited number of great ideas, and too many holdings can dilute the potential impact of the better ones."
So the prerequisite to a successful concentrated fund is a talented stock picker. All but one of the focused funds below boast managers with distinguished long-term records:
- Clipper (800-420-7556), which has a 14-year record, looks for stocks trading at a 30 percent discount to their "intrinsic value," if not more. The fund owns 20 stocks.
- CGM Focus (800-345-4048) promises all the thrills and spills of Kenneth Heebner's CGM Capital Development. A top-performer that generally holds 20 to 30 stocks.
- Marsico Focus (888-860-8686) is run by Tom Marsico, who ran Janus Twenty. He likes large growth stocks and is willing to pay a premium for them.
- Oakmark Select (800-625-6275) is the only fund listed here not run by a veteran manager. The value-driven fund has put up torrid numbers in the less than two years since its launch.
- Strong Growth 20 (800-368-1030) owns up to 30 stocks, which Ron Ognar selects from the 100 or so fast-growing stocks he holds.