Invest With the Superstars
Want to give your portfolio some oomph? Try investing in a flexible fund run by an expert stock picker who isn't tied to a specific investing style. These funds, sometimes called all-cap or multicap because they can invest in companies of any size, give managers the leeway to run with their best ideas. "When you give a smart manager the flexibility to go anywhere, they're bound to find the best opportunities in the world," says Steven Rogé, comanager of the Rogé Partners fund, a "fund of funds" that invests in a handful of such go-anywhere portfolios.
One of the best examples of a top-notch manager with a broad investing mandate is Legg Mason's Bill Miller, who is known for bargain-hunting in battered sectors. His Legg Mason Opportunity Trust is an eclectic fund that includes online retailers, steel producers, beaten-down home builders, and a handful of private-equity firms among its holdings. "I think the greatest gains over the next five years will be made in those securities people are panicked about today," Miller wrote in a recent letter to shareholders. Lately, he's been taking advantage of market turmoil by loading up on laggards in the financial and consumer sectors. The fund can trail the market in the short term—it's up only about 1 percent since the beginning of the year—but it has gained an average of 10 percent annually from its launch at the end of 1999 through November 1.
Another go-anywhere great is CGM Focus, a freewheeling fund run by Ken Heebner. The fund has returned a phenomenal 67 percent so far this year, thanks to Heebner's large bets on energy and global commodity producers (as well as some bets against the financial sector). Recently, more than half of the fund's assets resided in foreign firms. David Winters of the Wintergreen fund also roams the globe to find the best opportunities. The fund's top holdings recently included Japan Tobacco and Singapore-based casino operator Gentling International. Winters has steered the fund to a 24 percent annualized gain since its October 2005 inception.
Keep in mind that when you invest in a go-anywhere fund, you're essentially betting on the manager's stock-picking abilities, so make sure your all-star isn't a rookie. It pays to choose a manager with a proven track record (either at the current fund or in a previous charge). Also, annual expenses for such funds can be steep: Legg Mason Opportunity and Wintergreen charge 2.31 and 1.95 percent per year, respectively, while CGM levies a more reasonable 1.20 percent. These funds can be heavily concentrated in a handful of stocks, so bad calls can lead to steep drops in performance. For that reason, it's a good idea to restrict footloose funds to only a slice of your portfolio.
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