you shouldn’t place bets based on one-year performances. Several mutual funds that were at their peak in 1995- and still up in June of 1996–came tumbling down by Christmas. A prime example was top gun Garrett Van Wagoner, who lead the Govett Smaller Companies Fund to a 43.98% compound annual return during his three-year tenure and started his own family of funds: Van Wagoner Mid-Cap, Van Wagoner Micro-Cap and Van Wagoner Emerging Growth. The first half of the year, all three outperformed the benchmark indexes, each returning 35% or more. His hottest–up 49.7%-was Van Wagoner Emerging Growth. But its flame died down 15.5% during the second half of the year.
This illustrates why it’s important to have to a three- to five-year investment horizon. You should seek out funds that exhibit staying power-those that consistently produce good growth performance with little downward volatility.
Many fund managers ran for cover as tech stocks took a beating from fall 1995 through winter 1996. However, White Oak Growth Stock fund manager John Oelschlager saw this as an opportunity to buy more tech shares at a cheaper price. “We continue to stay heavily invested–about 65%-in technology. It’s not a narrow niche anymore; it’s like saying we invest in manufacturing companies,” he explains.
The fund is also heavily weighted–about 20%-in banks, insurance and other financial services companies. Oelschlager says he looks for companies with good management and a strong growth rate relative to the price of the stock. “We try to use a little common sense and a lot of flexibility when picking stocks,” he says.
Oelschlager’s investment style paid off royally in 1996. White Oak more than doubled, up 33%. The $75 million fund has 22 holdings. Some of its largest–each comprising 5%-6% of the portfolio–are Compaq, 3Com, Cisco, Citicorp and Nations Bank.
A BE top pick, Alger Capital Appreciation bested all aggressive growth funds in 1995 with a gain of 78.57%. But like many top performers that year, it too suffered a loss, posting only a 13.8% gain in 1996. But despite last year’s less than-rosy return, this fund is superlative when you look at its three-year cumulative total return of 98.69% and average annual return of 25.72%.
The $157.4 million fund has 81 holdings and invests in both emerging and established companies offering new or improved products, or firms that are fulfilling an increased demand for an existing product line. The fund’s top five industry groups as of December 31,1996, were communications equipment, 12.9%; computer software, 10.6%; financial services, 10.5%; semiconductors, 8%; and retailing, 7.2%. Among its top 10 company holdings were Tellabs Inc., Intel, 3Com, Nike, Citicorp and Boeing.
Unfortunately, the same technology stocks that lifted Alger Capital Appreciation in 1995 dragged the fund down in 1996. “The realization that technology stocks were running out of gas sort of snuck up on us,” says fund manager David Alger. “We went from a very overweighed position in technology–65%–to a moderate one–39%. But we did it incrementally. If we had done it right away in the fall of 1995,