| BUSINESSWEEK ONLINE : JULY 26, 1999 ISSUE | ||||||||
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| BUSINESSWEEK INVESTOR
Gabelli: The Value of Focusing on Growth Even for a fund that buys large-cap growth stocks, beating the Standard & Poor's 500 stock index is no layup. Over the last five years, only about one in four large-cap growth funds have done it. The $2.3 billion Gabelli Growth Fund (GABGX), with a 29.4% average annual total return, is one of them. BUSINESS WEEK gives the fund two As, showing it's a top performer when compared with all equity funds and when compared with its peer group. IBM (IBM), Texas Instruments (TXN), and Cisco Systems (CSCO) are the fund's largest holdings. That's not too different from what you'd find in competing funds. What portfolio manager Howard F. Ward brings to his shareholders is an attention to valuation that others lack. ''My system will force me to sell stocks if they get too richly priced,'' says the 43-year-old manager, who took charge of the fund 4 1/2 years ago. That's what happened this spring, when Ward sold a longtime holding in Charles Schwab. He had major gains on the stock when the market started to trade Schwab like a speculative Internet issue. He sold at $95, only to see the stock run up to $150 before coming down. ''Sure, I would have liked to have sold it at a higher price, but I still made five times my money,'' says Ward. The stock now trades at $53, after adjusting for a 2-for-1 split on July 1. A stock doesn't have to reach Internet-style valuations for Ward to sell. He has also unloaded big consumer growth stocks such as Coca-Cola (KO), Gillette (G), and Procter & Gamble, which are staples in many of his competitors' funds. He reasons that earnings growth rates have come down considerably, but price-earnings ratios have not. That leaves the stocks overvalued and vulnerable to earnings disappointments. As a large-cap manager, Ward has had the wind at his back for a long time, and knows it can change direction. But he does not plan to switch investment styles if large-cap growth stocks fall out of favor. ''We'll just tough it out,'' says Ward. Since growth stocks can be volatile, Ward tries to cut risk by not allowing any sector to exceed 25% of the fund's holdings. That rule, though, is a little squishy. ''If you count telecoms and service companies like EDS as technology, it goes up to nearly 60%,'' Ward admits. ''But the information economy is where the growth is.'' Still, Ward's attention to risk wins praise. ''This is one of the few big growth funds that has any risk controls,'' says Eric Kobren of Kobren Insight Group, which runs funds that invest in other mutual funds. ''Howard practices 'growth at a reasonable price' rather than 'growth at any price.''' Even if Ward occasionally leaves some money on the table, shareholders don't seem to mind as long as he puts plenty in their pockets. By Jeffrey M. Laderman _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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