Following the leaders is how Russell Ewing plays the investing game. That might sound simple, but as with most feats where much is
at risk, you probably shouldn’t try it at home.
You may recall that the 31-year-old money manager with Paradigm Asset Management, an institutional investment firm in New York City, evaluates the investment styles of top portfolio managers, gleans their moves from Securities and Exchange Commission filings, analyzes their picks and makes his move. For the most part, it looks like his active, enhanced style of investing works. Ewing manages four portfolios for Paradigm, two of which are relevant. The small-cap value portfolio posted an average annual return of 10.82% over the last three years, compared to 8.45% for the Russell 2000 Value Index. His large-cap value portfolio had a three-year return of 18.33%, compared to 21.24% for the Russell 1000 Value Index.
Meanwhile, Ewing’s five picks for Private Screening (“Follow the Leaders,” Moneywise, January 1999) rose an average of 11% in the 12 months after he recommended them, with three racking up double-digit gains. Leading the gainers: Sysco Corp. (NYSE: SYY), surging 29.93%, followed by oil-driller Baker Hughes (NYSE: BHI), which increased 28.28%, and French financial services firm AXA Group (NYSE: AXA), which rose 20.91%. Electric utility Peco Energy (NYSE: PE) rose a scant 0.08%. But one, Input/Output (NYSE: IO), fell just over 24%.
Still, Ewing says he’d hang on to-or even buy more of-Input/Output. If you’ve gassed up your car lately, you may have noticed that oil prices have increased. While this is good news for major oil companies like Mobil Corp. (NYSE: MOB), it takes a while for the glad tidings to trickle down to oil-equipment makers like Input/Output. Such firms are 12 to 18 months from reaping the full benefit of what we’re seeing today in terms of oil prices, Ewing says.
“Oil prices are coming back [and] major oil companies are getting ready to revamp their budgets,” says Ewing. Input/Output is “even a better name today than it was 12 months ago.”
One of Ewing’s favorite picks, Sysco Corp., which is in the food-distribution business, might seem ho-hum. Ewing says that’s part of its charm. But Sysco’s return of 30% in the 12 months after Ewing recommended it is pretty exciting. “They are so solid for that capitalization they should be a staple in many portfolios,” he says.
With big, growth-oriented companies leading the market, you might be tempted to abandon the risk controls of a well-diversified portfolio. But Ewing warns against that. With such investments, he says, “of course you’re not going to get the shooting-through-the-roof returns” of a more concentrated and, therefore, riskier portfolio. “But at the same time you’re not getting going-through-the-floor losses.”