Although the American Century Vista Fund, is not a concentrated fund, with 25% of its portfolio in two stocks, it certainly has some characteristics of one.
That's just fine with Vista portfolio manager Glenn Fogle.
"Active managers ought to be paid to be stock pickers," said Mr. Fogle. "As an active manager, it troubles me to see a portfolio of 100 names that are all equally weighted. To me, that says the manager doesn't know what his best stocks are."
Mr. Fogle knows what his best is: JDS Uniphase Corp., which accounts for 15% of his 57-stock portfolio. Another favorite is Qualcomm Inc., which represents about 10% of the fund.
As of April 30, Uniphase is up 28.5% year to date, and Qualcomm is down 38.4%, according to Morningstar, Inc., Chicago. For the same period, Mr. Fogle's Vista Fund is up 10.2%, according to Morningstar Inc., Chicago.
Mr. Fogle said the solid performance in the face of market volatility may be due to the fund's new strategy of eliminating "the middle ground," which began in 1998 after some down years.
The Vista strategy is to hold larger positions in the top 25 to 30 names in the portfolio, representing between two-thirds and three-fourths of the portfolio. He calls these the "blemish-free stocks," those that exemplify what he and co-portfolio manager Arnold Douville are looking for in stocks.
JDS Uniphase, a company that designs and manufactures fiberoptic products, is a classic example. "I have more confidence in Uniphase for the next three years than any other company in the industry. There's just not a peer," said Mr. Fogle. He believes the company's position in its industry is similar to that of Intel Corp. or Microsoft Corp., and it will continue its dominance in the long term.
"There's a terrible temptation to trim your winners," said Mr. Fogle. "Uniphase earned its way to 15% of the fund."
With such a concentration in the top names, risk is definitely a factor. "You have to have a defensive analysis as well," said Mr. Fogle. "What are the odds that this stock could blow up in my face?"
He looks for companies with strong fundamentals and long-term growth potential and stays away from the more speculative names in the top 30 stocks.
The second bucket of stocks in the portfolio make up less than 1%. These stocks play a "supporting role" as effective diversifiers, Mr. Fogle said.
These are typically positions in an industry -- rather than a specific company -- that the team finds attractive. For example, energy and related businesses now represent a majority of the second part of the portfolio because of improving conditions in the oil industry.
Mr. Fogle said the firm recently took small positions in eight offshore drillers.
"The driver wasn't what any one company was doing; the driver was industry-wide conditions," he said.