Word: bets
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Dates: during 1990-1999
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...bet funds are nothing new. But they are getting a lot of attention now. A choppy market like the one we've had this summer is where savvy stock pickers are supposed to excel. There are about 150 big-bet funds, reports fund-research firm Morningstar Inc. That's up from about 100 six years ago. The theory is solid. In any large portfolio, the manager is sure to have favorite stocks--often those on which he has done the best research. Why not double up on those and ditch the rest...
...picker--and that creature is as rare as the Mark McGwires of the world. The Sequoia Fund, for example, has beaten both the average stock fund and the S&P 500 for the past one, three and five years. But it does not accept new investors. Some solid big-bet funds that do welcome new money include Davis Growth, Clipper, Janus Twenty, Lexington Corporate Leaders, Yacktman and Enterprise Growth...
Like actively managed funds with larger portfolios, however, only a few of the big bets beat the market. At my request, Morningstar screened for stock funds that hold 35 or fewer stocks today and also met that test in 1995 and 1993. That weeds out new funds and those that were concentrated for only a short time. The screen turned up 31 funds. Only four (Sequoia, New England Growth, Enterprise Growth and Clipper) are beating the market this year. On average, the group of 31 has returned just 12% a year for the past five years...
...index funds--the bane of active managers--continue to dazzle. Their weak spot was supposed to be a down market. But when the market tumbled in August, the index funds held up better than most. Which tells you that if you can hitch your wagon to a star, big-bet funds are worth it. Failing that, though, better just to stick your money in an index fund and let it ride...
...time.com/personal for more on big-bet funds. E-mail Dan at kadlec@time.com See him Tuesday on CNNfn...