Planting The Seeds Of Future Harvest

Tag : Why Do Plants Have Seeds
The fund's managers hope their patient cultivation will result insome serious green. To that end, they approach investing in threephases: garden, crop and harvest.
It works this way: The team plants investment seeds in a garden.Then they carefully tend their crop of companies to make sure theystay on a growth track. Finally, they harvest the full-grown stockeither when it peaks or when its performance slows.
The 11-year-old mid-cap growth fund has almost $4.4 billion inassets. It invests mostly in U.S. companies.
Although its holdings are a broad mix of sectors, the fundoccasionally skews heavily in one or two areas. Among the 86 stocksthe fund currently stables, nearly 22% focus on health care, andsome 17% are materials-oriented businesses. It caps industryinvestment at 25%.
In preparing to plant, co-managers Andrew Stephens, James Hamel andShayne John look for low-cost companies with a good brand name or aniche product that is poised for long-term growth.
Value is crucial when the team is looking for prospects. Thesethree like bargains with star potential.
Once they have locked on a stock, they consider it to be in thegarden phase. This means they will keep the fund's position on thesmaller side, and watch the stock carefully.
If the company matures and turns a hearty profit, the managementteam bumps up its position. This is the crop phase. A company thatkeeps raking in the lettuce gets even more portfolio weight.
Bringing In The Sheaves
Once the company tanks or starts to decelerate, though, it's timeto harvest it right out of the portfolio. The fund's annualturnover is 71%.
Andrews has managed the fund since its inception in 1997, so he hasseen it cycle with the years. It slid minimally in the 2000-02 bearmarket and recovered well.
The fund is down 13.32% so far in 2008, lagging the -11.76% ofmid-cap growth funds tracked by Morningstar Inc. and the S&P500's -13.15%.
But the fund's average annual return of 10.75% of the past 10 yearshas beaten its peers' 9.78% and the S&P's 6.85%. The managersweren't interested in discussing the fund, which is closed to newinvestors.