534 / 772
4
even though they run a growth fund. That’s why the
managers like it when a favorite biotech or tech name
has a temporary sell-off. For example, the managers
boosted their stake in fallen
HP HPQ
when it dipped in
the second quarter. The stock fell some more in the
fall, but the Primecap folks are patient investors, so
that doesn’t make it a mistake. The same is true
of
LM Ericsson
ERIC
, which got cheap in the second
quarter and has since gotten cheaper. On the other
hand, they added to
Progressive
PGR
, which was
trading around where it had traded for a while in the
second quarter, and the stock has since taken off.
They also bought tech highflier
NetApp
NTAP
on a dip
in the second quarter.
Royce Special RYSEX: Focusing on small value.
Clearly the style box captures some of what Charlie
Dreifus is doing. Nearly all his trades occurred in
the small-value realm. Dreifus places strong emphasis
on price and accounting. He avoids any companies
with a hint of accounting gimmickry in favor of those
with healthy balance sheets but whose shares
are trading at low valuations. For example, he bought
Vishay Intertechnology
VSH
in the third quarter.
The semiconductor maker’s stock was hit hard, but
its low levels of debt likely attracted Dreifus.
T. Rowe Price Capital Appreciation PRWCX:
Growth at a reasonable price.
David Giroux wants blue-chip stocks trading at modest
multiples. As you can see, though, he was buying
names all over the style box. This fund isn’t pegged to
one corner of the style box as it is meant to be a
broad core holding. Giroux views valuations differently
for growth stocks versus cyclical stocks. For cyclicals,
he wants companies trading cheaply relative to what
they can earn over a full market cycle. Thus, he
trimmed
AutoZone
AZO
even though it was far into
growth territory, perhaps because it was trading
near a five-year high in the third quarter. Conversely,
Johnson Controls
JCI
was added in the third
quarter at a multiyear low. He also added to one of
his favorite stocks:
Marsh & MacLennan
MMC
. The
insurer’s shares were depressed by a strong dollar
and weak emerging markets, but some say the under-
lying businesses remained strong.
Final Thoughts
It helps to understand your manager’s process so
that you can use the fund wisely and find complemen-
tary funds for your portfolio. As you can see, some
funds are quite focused within one corner of the style
box and others are more diffuse. As such, their
performance will be fairly different. For that reason,
it is often a good idea to have some of both types.
K
Valuation
Value
Blend
Growth
Market Capitalization
Small
Mid
Large
1
Buys
1
Sells
Royce Special
RYSEX
Valuation
Value
Blend
Growth
Market Capitalization
Small
Mid
Large
1
Buys
1
Sells
T. Rowe Price
Cap App PRWCX