In an era when markets are volatile and trades are just a click away, it's unusual to find active managers who hold their positions through the peaks and valleys -- particularly aggressive growth managers.
Richie Freeman and Jim Oelschlager buck the trend.
"I'm a believer in the expression, `The big money is made in the sitting and not the trading,' " said Mr. Freeman, portfolio manager at SSB Citi Asset Management Group, New York, who has managed the Smith Barney Aggressive Growth Fund since 1983.
The annual turnover in his 83-stock portfolio is 8%. That's relatively low, considering that the average turnover ratio among large-cap growth funds is more than 100% per year, according to Morningstar Inc., Chicago.
"It really does stand out," said Russel Kinnell, director of fund analysis at Morningstar. "There aren't many growth funds of any stripe that have turnover that low."
For the 10-year period ended June 1, Mr. Freeman's fund has returned 20.1%. For the five-, three- and one-year periods ended June 1, the fund has returned 32%, 40.6% and 60.4%, respectively. Year-to-date through June 1 it is up 10.9%.
The low-turnover style of management is challenging in a growth portfolio because many growth stocks are from technology and Internet companies that see their businesses and prospects change so quickly. "A lot of managers would probably find it a little dangerous to keep such a static portfolio and not dive in after some of the big winners," said Mr. Kinnell.
For the approach to work, however, you have to identify the right companies in which to invest, said Mr. Freeman, who selects securities on a "stock-by-stock" basis.
He looks at owning companies for "three, five, and 10 years, not just one or two quarters" -- typically those with a product or service "so important that the consumer feels compelled to use it," he said. Mr. Freeman also looks for financially strong companies with several years' cash reserves, so they can survive the market dips and corrections without losing track of their long-term plans.
"We buy companies that we think, over time, can become great dominant franchises," said Mr. Freeman, a firm believer in letting your winners run. "Look at the people who have the one penny stock on Coke or Wal-Mart. That's where the wealth of the country has been built."
One of those winners is Intel Corp. Mr. Freeman bought stock in the then-$3 billion company in 1985; today, Intel is worth $43 billion and is the largest holding in Mr. Freeman's fund. Another is Tyco International Ltd. The company was worth $228 million when he bought its stock in 1983; today it is worth $70 billion.
Most of the stocks in the portfolio were bought as small-cap and midcap names and have grown to large-cap names over time, Mr. Freeman said.
Other top-10 holdings have been growing for more than 10 years, such as Forest Labs Inc. and Comcast Corp., both of which he bought in 1983, and Amgen Inc., which he bought in 1987.
Mr. Freeman has not added a single position to the portfolio this year. His last new acquisition was pharmaceutical company ALZA Corp., purchased in December 1999.
However, Mr. Freeman has used cash reserves to add to some existing positions, many -- including Chiron Corp. and Genzyme Corp. -- in the biotech industry. That sector represents 35% of the portfolio, its heaviest weighting. Biotech and health-care companies, said Mr. Freeman, are at the forefront in technology, produce products that can change lives and have strong patent protection.
Another stock Mr. Freeman added to in recent months in Alkermes Inc., a drug delivery company. Down the road, he sees these and laser companies as the ones to hold on to.
Motion and progress
Mr. Oelschalger, president of Oak Associates Ltd., Akron, Ohio, is also sticking with his positions. He has managed the White Oak Growth Stock Fund since its inception in 1992. The fund, a concentrated portfolio of 23 stocks, has an annual turnover rate of just 6%.
"A lot of other managers confuse motion with progress," said Mr. Oelschlager. "I find that buying stocks with a longer term time frame and holding them -- as opposed to jumping around -- seems to work better."
"Our goal is to outperform the market," he said, "which we've been successful at doing."
Year-to-date through June 1, the fund is up 14.9%. For the five-year period ended June 1, it is up 38%. For the three- and one-year periods ended June 1, the fund is up 38.2% and 61%, respectively. Mr. Oelschlager began the fund by buying stock in American International Group Inc. and Cisco Systems Inc., both still in the portfolio.
This year, Mr. Oelschlager has added fiber-optic equipment producer Corning Inc. and data storage company Brocade Communications Systems Inc. The firms represent two subsets of technology, data storage and fiber-optics, that Mr. Oelschlager believes are very attractive.
He's only sold one position this year, Tellabs Inc. "People tend to want to do something, particularly when the market's undergoing a correction," Oelschlager said, but his philosophy is to make sure the fundamentals of the companies are intact, then "ride through it."