Worthy Funds That Are Finding Value in Growth
A recent growth tilt has helped set these value-oriented offerings apart from the pack.
Coming out of a grueling recession, these past two years have presented real buying opportunities in stocks that are increasing at a faster rate than the sluggish economy. For example, growth firms such as Netflix (NFLX), Chipotle Mexican Grill (CMG), and Apple (AAPL) have been on a tear.
And given that the state of the economy is uncertain, fund managers--particularly those of large-cap funds--have also been on the prowl for reasonably priced growth opportunities, with a particular emphasis on mega-cap, high-quality firms.
To help identify solid bargain-hunting funds whose managers have turned up opportunities among companies with decent growth prospects, we turned to the Premium Fund Screener. We started by screening for funds in the large-value category whose most recent portfolios tilted them into the "blend" area of the Morningstar Style Box. (Funds' category and style-box assignments can differ from time to time; the former are based on the fund's style-box placement during the past three years, whereas a fund's current style-box position is simply a snapshot of its most recent portfolio.) On the fees front, we called up no-load funds with expenses below the category average.
We also sought offerings with Analyst Reports available and at least a Morningstar Rating for funds of 3 stars. Finally, we required that managers have helmed their funds for at least five years. When we eliminated both institutional and index funds with initial investment minimums of more than $5,000, as well as multiple share classes of the same portfolio, the screen yielded four funds; we highlight one of them below. Premium members can click here to replicate this screen.
Yacktman is a classic example of a fund whose managers, similar to Warren Buffett, like to buy high-quality companies when they're on sale. Managers Donald Yacktman, Stephen Yacktman, and Jason Subotky favor cash-heavy firms and selling at a discount to their estimates of fair value. The managers tend to keep a fairly concentrated portfolio of less than 40 holdings and maintain a long-term outlook as indicated by the fund's minuscule turnover of 10%. As usual, the managers have been finding a lot to like among high-quality names in the consumer space: Currently, well more than half of the portfolio's stock sleeve (65%) lands in the large-blend style box, with blue chips such as PepsiCo (PEP), Microsoft (MSFT), Procter & Gamble (PG), and Cisco Systems (CSCO) occupying top positions in the portfolio. Investors have reason to trust managers' conviction as their disciplined strategy has resulted in a topnotch track record. In fact, the fund has been number one in its category for every trailing period greater than a year.
Next, keeping most of the other criteria the same as in the previous screen, we sought large-blend offerings whose recent portfolios have taken on a more distinct growth tilt. Below, we've high lighted two of the funds the screen yielded. To run this screen, Premium members can click here.
Manning & Napier Pro-Blend Maximum Term (EXHAX)
A team of 10 helm this all-cap fund. Using discounted cash-flow models, management identifies stocks that they think are trading at discounts of more than 25% to their estimates of fair value. In the past, management has found deep-value names compelling, but these days they're partial to more reasonably priced growth stocks with sustainable competitive advantages. Roughly half of the fund's current portfolio lands in the growth column of the style box--for example, the portfolio's second-largest holding is high-flyer Google (GOOG). Long-term investors will find a compelling option here.
Much like the skippers at Yacktman (and Warren Buffett), this venerable fund's managers prefer to buy high-quality companies with decent growth prospects when they think they're on sale. Bob Goldfarb and David Poppe keep a tightly concentrated portfolio of typically 10 to 25 names and are willing to wait on the sidelines with cash until they find companies with the right balance of quality and value. The pair favors companies with topnotch management, long-term sustainable competitive advantages, and clear-cut, uncomplicated businesses. Large-cap growth stocks absorb about 64% of the offering's current portfolio with names such as Fastenal (FAST), Rolls-Royce (RYCEY), and Google taking up top positions. Investors who share this team's sensible, high-conviction investing approach will find Sequoia to be a worthy contender as a core holding.
Esther Pak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.