On Track with North Track


By Robert Barker Chances are excellent that you've never heard of North Track Funds. Neither had I, until recently. But if you have a broker or financial adviser, particularly one from a regional firm such as Raymond James, Legg Mason, or Sutro, chances are also good that you may hear the name soon.

North Track, a 10-fund family with just $1.3 billion in assets, has hired a bunch of salespeople to help build those assets to $10 billion by the end of 2003. The Milwaukee-based fund family, which has been around since 1985, until March was called the Principal Preservation Portfolios. It's probably best known for a tech-stock index fund, PSE Tech 100 (PPTIX), which Morningstar gives five stars. Like other technology funds, it's volatile: up 115% in 1999, down 17% last year. Through June 6, it was down 4.8%.

Now North Track is adding two specialized funds, focused on the financial-services and health-care sectors and based on Dow Jones indexes. Robert Tuszynski, North Track's chief executive, recently called on me in my Melbourne Beach (Fla.) office -- an unusual stop for a fellow peddling mutual funds. If you'd care to listen in, here are edited excerpts of our discussion:

Q: I don't get many visitors. What are you doing in Florida?

A: I'm here visiting a number of different firms, including [St. Petersburg-based] Raymond James (RJF). At the same time, I thought it would be interesting to meet with a variety of people from the media to discuss our North Track Fund Family and our sharpened focus centered around indexing.

Q: So, you guys buy the argument that index funds deliver plenty of reliable performance at low cost. Now, North Track used to be Principal Preservation.

A: That is correct.

Q: Did you change the name because you didn't preserve principal?

A: No, that's not it at all. There are two reasons why we wanted to change the name. First of all, in looking at our composition of our portfolio of funds, they're really equity [funds] for creating wealth. Second of all, the Principal Group of Funds recently changed their name. They used to be called Princor. And we just felt that we wanted to avoid confusion.

Q: Now if a BusinessWeek reader were interested in buying one of your funds, he or she would have to go to an investment adviser or broker of some sort, an intermediary. Why would an intelligent individual investor want to do that? It costs more money.

A: Much of it is about time. Many intelligent investors weigh their time against their expected returns. And many people, while they're intelligent, don't spend their every waking hour or much of their day following the financial markets. Probably 80% of all money that comes into mutual funds is generated through an advice channel.

Q: You have two new funds. One is supposed to track the financial-services industry and the other the health-care industry, right?

A: Right, as measured by Dow Jones.

Q: So, do you think investors will do better than the overall market by overweighting those two industries, financial services and health care, in their portfolios?

A: If you look at the last 20 years, look at the three sectors -- technology, health care, and financial services. [In] 18 of the last 20 years, one of those three sectors has been a [high].... One of the three will always be up there.

This year, for instance, the financial-services sector is up. If you look at the tech sector, it's down about 7%, and health care is somewhere in between.

Q: What I don't understand about this -- and it's why I haven't invested in a sector fund -- is this: I've been hearing for years, "Buy technology, it's going up!" And of course, it has, a lot, but not every year.

A: Right.

Q: But aren't all of those expectations about technological advances -- or demographics, in the case of health care -- very well known already by the market? I've heard it a million times: Buy drug stocks because we're all getting older and we're going to have to use lots of pharmaceuticals. Isn't that already embedded in the stock prices?

A: To some extent it is, but to some extent, there are still major advancements made every day. In 2000, for instance, our tech fund was down about 17% when the average technology fund was down about 35%. What really helped it out was the biotechnology component of the index.

You could in essence say, well, I'm not going to buy anything but food because I know people have to eat all the time. But with the advancements being made, people want to live healthier. They want to live easier. They want the conveniences.

Q: Tell me this: Do you own these funds yourself?

A: Yes, I do. I definitely have 100% of my investable dollars in the fund family.

Q: And among those four funds that you have positions in, how do you have your assets allocated?

A: Roughly, besides some international exposure and some value exposure, approximately 30% is in the tech fund, and another 25% is in the S&P 100 fund.

Q: Anything else?

A: I think compared to other actively managed funds, within their sectors, [our funds'] expense ratios are lower.

Q: How much lower?

A: For the Health Care and Financial Services Funds, they're about 1.1% and for the PSE about 0.8%. The typical technology fund is about 1.4% on the expense ratio, as well as in the health-care and financial-services sector. So, they're more cost-efficient. Barker covers personal finance in his Barker Portfolio column for BusinessWeek. His barker.online column appears every Friday, only on BW Online


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