STREET WISE By Amey Stone
MFS MIT: A FUND THAT EPITOMIZES LONG-TERM INVESTING With the market stumbling lower and Asiaís economic problems worsening, it helps to take a long-term view of investing. Thatís the philosophy practiced by the oldest mutual fund in the country, MFS Massachusetts Investors Trust (MIT), which opened for business in March, 1924. If you had invested $10,000 in the fund during those Roaring 20s, you -- or your heirs -- would have around $12 million by now.
That about matches the return of the S&P 500 over that time. But recently -- during the past 10 years -- the fund has managed to narrowly beat the S&P, which is a rare feat for mutual funds. MIT has returned an average of 18.5% a year over the past decade, putting it in the top 9% of funds in its category. Over the past three years, it has returned 27% annually, earning it a ranking in the top 4% of Morningstar's group of large-cap funds that combine a growth and value investing style.
Those are the kinds of potential gains investors should keep in mind during volatile times like these. Despite the Dow Jones industrial average's 90-point rise to 8553 on Aug. 12, the market is still down 785 points, or 8.4%, from its July 17 high of 9,338.
John D. Laupheimer Jr., the lead portfolio manager of the $9 billion fund, thinks market conditions may take a while to improve. Investors are too complacent, he believes. Since they think that stock prices can only go up they don't pay attention to valuations, such as the stock price relative to earnings. Only when investors start paying more attention to company fundamentals can the market stabilize, he argues -- and companies with the earnings growth potential to justify a higher stock price move ahead.
Since a correction should lead to more reasonable stock prices, Laupheimer, like many investors, considers it a "healthy" event. But he concedes that over the past few weeks, it hasn't been "fun" to run his portfolio. Still, he's philosophical, noting that as stocks rose almost unimpeded in recent years, investing "was more fun than it ought to have been."
Despite his concerns about the direction of the market, Laupheimer, who has been on MIT's management team since 1993, wouldn't tamper with the historic fund's strategy. Already he has focused on a few names that he thinks got hammered unjustifiably, such as Service Corp. International (SRV), which is in the funeral home business. It missed analysts' estimates for the second quarter by one penny, due to lower-than-expected mortality rates in New England, and fell 10% in one day, says Laupheimer. Gannett (GCI) is another recent pick of Laupheimer's. The company had a great quarter, but it got taken down along with a few of its competitors who didnít, he says.
Although Morningstar credited the fund with outperforming the S&P while taking less risk in a January, 1998, report, Laupheimer hasnít avoided the marketís wrath lately. Year-to-date the fund is up 8%, while the market still registers an 11% gain. In the past week, the fund fell 1.4%, putting it in the bottom 10% of funds in its category. Holdings in United Healthcare (UNH), Allied Signal (ALD), Household International (HI), and Bristol-Myers Squibb (BMY) contributed to the decline. "If you outperform in up markets, you wonít outperform in down markets," says Laupheimer now, even though the fund disproved that rule for years.
Laupheimer manages 60% of assets. Kevin R. Parke, who was recently named chief equity officer of Massachusetts Financial Services, and Mitchell D. Dynan, who joined the team in 1995, each manage a 20% stake. That sharing of management has added a measure of diversification to the fund over the years, says Laupheimer. It has also provided a training ground. When Dynan started out, he managed only 3% of assets and moved up gradually as he proved himself. He will eventually take over the portion managed by Parke, who will focus on his new duties. "We run in friendly competition," Laupheimer says.
Since each manager is looking for stocks with the same characteristics -- 90% of the yield of the S&P, plus a lower beta (a measure of volatility) than the index -- they sometimes all pick the same companies. Exxon (XON), Air Products & Chemicals (APD), Kimberly Clark (KMB), Colgate Palmolive (CL), Gillette (G), Philip Morris (MO), Warner Lambert (WLA), and Household International are in all three managers' portfolios.
Laupheimer is keenly aware of the responsibility that comes with managing the country's oldest mutual fund. He knows there are shareholders who have held the fund for much of its existence. Once he got a call from an old Navy buddy of his father's who was managing a relative's estate, which included shares in the fund dating back to its inception. He told Laupheimer to follow "the ABCs of investing. "Always be careful." Not surprisingly, Laupheimer has that advice well in mind just now.
BW Online associate editor Amey Stone interviewed Laupheimer in his Boston office on Aug. 10 -- a day when the market fell only 23 points
News Flash Archives
Copyright 1998, Bloomberg L.P.