Winner takes most

Daedalus Capital's Coleman targets emerging market leaders

Six years ago, Stephen Coleman named his firm Daedalus Capital after the mythological architect who fastened wings to his body to achieve flight. Since that time, the return on his carefully constructed portfolio has soared to heavenly heights. For instance, St. Louis-based Daedalus’ annualized return of 51.33% since inception has far outstripped the S&P 500′s annualized return of 27.20%, earning kudos from Pension and Investments magazine as one of the top equity money managers.

How does Coleman do it? He invests his $250 million multicap portfolio-which has welcomed high-net-worth investors as well as those who can only afford to part with $5,000-through what he calls a “focused equity management” approach that limits holdings to no less than 10 and no more than 25 stocks (currently it has 12); will invest no more than 10% of total assets in any one company; and develops a portfolio around three to four major themes. “I don’t have a ‘buy and hold’ philosophy or categorize myself as a value or growth manager,” asserts Coleman. “I believe in buy and pay very close attention. We buy stocks that are best poised to rise.”

To achieve his lofty goals, Coleman looks for companies that employ a “winner-take-most” strategy, and are positioned to be market leaders within their industries or a niche within a given sector. As a result, the portfolio has a virtually nonexistent portfolio turnover rate on an annualized basis.

Currently, Coleman is totally focused on New Economy concerns. The 12 stocks that make up Daedalus’ portfolio: software makers Adobe Systems (Nasdaq: ADBE), Great Plains Software (Nasdaq: GPSI), Novell (Nasdaq: NOVL), Oracle (Nasdaq: ORCL) and Siebel Systems (Nasdaq: SEBL); telecom equipment manufacturers Nokia (NYSE: NOK), Qualcomm (Nasdaq: QCOM); and Nortel Networks (NYSE: NT); fiber optics equipment maker Corning (NYSE: GLW); chip maker Broadcom (Nasdaq: BRCM); microprocessor and software manufacturer Sun Microsystems (Nasdaq: SUNW); and agribusiness concern Delta & Pine Land Co. (NYSE: DLP).

For the time being, Coleman is sticking to his tech-driven 12. For example, he expects to see significant revenue and earnings growth from Irvine, California Broadcom, which split 2-for-1, because of the better-than-expected growth in broadband transmission markets. Another comer: Delta, which had a record 12% increase in the fiscal third quarter due to the development of gene-spliced seeds.

But he’ll hold on to a stock as long as it sustains its performance level and competitive advantage. For instance, when he traded the electronics and entertainment conglomerate Sony (NYSE: SNE) for Great Plains. “I tripled my money with Sony in nine months and saw that it was a third of the valuation of its competitor,” he says. “I sold Sony and bought Great Plains, which has a joint venture with Siebel Systems, which created a complete front to back enterprise solution for the middle market.”

Unlike Icarus, Daedalus’ son, who flew so close to the sun his wings melted, Coleman doesn’t flirt with destruction by holding on to a stock that’s doomed to burn.

Stocks with Wings

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