Bets on bargains power year's top large-cap fund
NEW YORK (Reuters) - The year’s best performing large-cap growth fund is run by a Charlotte, North Carolina-based manager who is more likely to bargain-hunt than chase the latest hot stock.
With his $1 billion Sterling Capital Special Opportunities fund (BOPIX.O), portfolio manager George Shipp has posted the year's best performance among the 1,738 large-cap growth funds tracked by Morningstar. He's done that by adding companies such as Apple Inc (AAPL.O), Halliburton Co (HAL.N) and Akamai Technologies Inc (AKAM.O) after the shares of each suffered a short-term drop. He also favors older, proven technology companies like Cisco Systems instead of others like Facebook, Twitter and Netflix that have attracted momentum investors.
Shipp's 13.4 percent gain for the year through June 30 stands out; just 27 percent of all large cap funds bested the performance of the S&P 500 index over that time, according to S&P CapitalIQ. Over the last decade, his fund has returned an average of 11.2 percent annually, putting it in the top 2 percent of its peers.
For each pick in his small portfolio of 30 stocks, Shipp's looking for companies with strong balance sheets, low price-to- book valuations and some enduring competitive advantage. "We don’t mind being bad-news buyers in good companies," he said.
He also doesn't mind biding his time. Shipp added only two stocks to his portfolio in the first quarter of 2014: Verisk Analytics Inc (VRSK.O), a "big data" company providing risk analytics to insurance companies, and Expeditors International of Washington Inc. (EXPD.O), a logistics company.
In deciding to pick up Apple after it fell below $400 a share in June 2013, he admits, "We were too stupid to own it before," a decision that hurt the fund's returns in 2011 and 2012 when the technology company rallied to over $700 a share before its recent 7 for 1 split.
Shipp added a position in Akamai Technologies, whose software is behind many cloud and streaming services, in the first quarter of 2013 as its shares slid 15 percent. "It's a simple story: they help make the Internet go faster," he said.
Akamai has since rebounded, posting a 29 percent gain for the year to date.
"This fund is clearly making stock-specific calls, and right now it's being rewarded for it," said Todd Rosenbluth, director of mutual fund research at S&P CapitalIQ.
Shipp has long taken a large bet on technology because he likes the sector's cash-rich balance sheets and growth prospects. With positions in Cisco Systems Inc (CSCO.O), eBay Inc (EBAY.O), and Citrix Systems (CTXS.O), Shipp has nearly 28 percent of his portfolio in software and technology companies, a stake about 8 percentage points higher than the average large cap growth fund and roughly double the S&P 500 as whole.
He has no plans to reduce that stake meaningfully even as the Nasdaq hits 14-year highs, he said. He's happy with a company like Cisco, which he calls an "old tech clunky company, because it has approximately $45 billion in cash on hand and has been increasing its dividend. Its shares are up 11 percent for the year, but just 3 percent over the last 12 months.
Investors in the fund's no-load shares will pay an annual fee of $1.24 per $100 invested, a fee level that Morningstar considers average for an actively managed fund.
(Reporting by David Randall; Editing by Linda Stern and Dan Grebler)