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Nothing But The Best


BusinessWeek Investor: Mutual Funds

Nothing but the Best

Shawn Lytle picks the global stars for J.P. Morgan

In May, 1998, the J.P. Morgan Global 50 Fund launched a worldwide search for the 50 best large-company stocks. The goal: beating the market without extra risk. So far, so good. Through June 30, the $161 million fund returned a yearly average of 17.9%--more than three percentage points higher than its benchmark, the MSCI World Index. To see what the fund, which has clones for European and Japanese investors, is up to, Business Week's Robert Barker reached co-manager Shawn Lytle in Morgan's London office. Edited excerpts of their discussion follow:Q: How do you find stocks to buy?A: Instead of thinking of the world as different regions and then trying to pick the best companies in the U.S., Europe, and Japan, we think of the world as 19 different [industry] sectors. We really try to pick the best companies in each of those sectors, based on what our analysts' fundamental valuation tools are telling us.Q: What's your biggest position?A: Philips Electronics. It's about 3.5% of assets. This is a stock that was not in the initial portfolio, but we bought it soon after, in August, 1998. It had seen a significant sell-off in the market turbulence of the Asian crisis and the Russian ruble devaluation.Q: Is it now time to sell Philips?A: No. Philips is a diversified company. It has semiconductors, it has the consumer-electronics business--and that's a business that they have reengineered and that has come up with a lot of new products with nicer designs, sexier designs. What has really surprised the Street and helped to drive the stock during the past several months is positive news on the mobile-phone side. It looks like that business is going to break even sooner than the market thought. That's why we still see some upside potential in the stock.Q: Sony had been your top position at the beginning of the year. Do you still own it?A: We sold it in June. We feel that a lot of the [bullish] story with the Playstation2 and the consolidation of its businesses is in the stock price. We bought the stock in October, 1998, and it was up 168% since. We just decided, given the sell-off in U.S. tech, that it was a good time for us to move out of Sony and put the money into Sun Microsystems. We want to go with the best new opportunity on the infrastructure side.Q: How about Cisco Systems?A: It had been for a long time our only U.S. tech stock. We still like it.Q: What else have you dropped from the portfolio recently?A: China Telecom. It was a stock that we liked in the wireless space. Clearly, in China it had the leadership position. We decided to sell it based on some short-term concerns over market share because another player was coming into the market, China Unicom, which we bought at the initial public offering. It's now about 1.4% of the portfolio and is up about 12% so far.Q: Any other recent additions?A: Time Warner, as a nice proxy into the combined AOL/Time Warner company. It was selling at a discount [earlier this year]. We do think that this is a very strong combination of both content and access. We think that the AOL model is very strong, and you can value the company the way you'd value a cable company.

Takeda Chemical is [another] business that we had been eyeing and that our Japanese health-care analyst had been pounding the table [for]. We added it in February. Takeda Chemical is one of the larger pharma companies in Japan. It again has a very strong cost-cutting or restructuring story. And they have a very strong diabetes drug that they're marketing in the U.S. under the name of Actos.Return to top

TABLE

J.P. Morgan Global 50

TICKER SYMBOL

JPMGXASSETS

$161 millionTOTAL RETURN SINCE INCEPTION*

17.9%YTD TOTAL RETURN**

0.0%EXPENSE RATIO

1.5%LARGEST HOLDINGS

Philips Electronics, Chartered Semiconductor, Alcatel* Annualized, May, 1998, through June 30, 2000

** Through July 6

DATA: COMPANY REPORTSReturn to top


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