Most funds, regardless of category, are having a tough time making money in 1994. Any portfolio manager can make money when the wind is at his/her back, but difficult markets really separate the super-star managers from the mediocre.
A fund family that has been proving its worth of late is the Warburg Pincus family of funds. For investors looking for both a domestic and international stock fund, Warburg Pincus has two candidates worthy of your consideration.NOT A HOUSEHOLD NAME. Warburg Pincus isn't the first name to pop into a mutual fund investor's head when thinking of top performing funds. That's because it believes in spending more money on research than it does on advertising. However, Warburg Pincus shareholders are smiling all the way to the bank.
New York-based Warburg Pincus is the only fund family to have a fund represented in both the top 10 domestic stock fund recommended list and top 10 international stock fund list. (For a free list of all my current fund recommendations, call 800-445-5900.)
Warburg Pincus International is the No. 2 international stock fund and Warburg Pincus Growth & Income is the No. 5 domestic stock fund in my ranking system. Both have done exceptionally well in 1993 and 1994. Both should continue to do well.
1. WARBURG PINCUS GROWTH & INCOME. Growth and income funds have the stereotype of being a more conservative and less profitable equity alternative. Growth and income funds must invest in stocks that pay dividends, which means a lot of the high-growth stocks that do not pay dividends are disqualified from consideration. Despite this more restrictive charter, Warburg Pincus Growth & Income, managed by Tony Orphanos, has all the profit potential of an aggressive growth fund with only a portion (beta of 0.72) of the downside risk.
Orphanos delivers lots of growth but little income. The fund has a yield of less than 1 percent, which is about 120 basis points less than the group average. OK, there isn't much yield, but there is a ton of growth.
Since Orphanos took over in January 1992, the fund has done very well. In 1993, the fund beat the Standard & Poor's 500 by 27 percentage points and through May 25, it's one of the few diversified domestic stock funds that has managed to produce positive returns.
WARBURG PINCUS GROWTH & INCOME 1992
Orphanos has achieved his impressive performance by making some very intrepid sector bets. In 1993, for example, Orphanos loaded up on high-quality gold mining stocks, which proved to be exceptionally profitable. His 1994 performance is due to his equally prescient overweighting in industrial cyclical stocks.
Warburg Pincus Growth & Income is not your traditional growth and income fund. It behaves a lot more like a growth fund. However, investors looking for a vehicle to prosper in a tough domestic stock market will find Orphanos' stock and sector picking ability an oasis among the mediocre.
2. WARBURG PINCUS INTERNATIONAL EQUITY. It is unusual to find two stellar performers within the same fund family. It must be something in the Warburg Pincus water cooler. Whatever it is, this fund family is making its shareholders a lot of money.
Managed by Richard King, Warburg Pincus International Equity, is on a tear. After a 50 percent-plus year in 1993, it has managed to sidestep the declines other broadly diversified international funds have had in 1994. Through May 25, the fund is up 3.48 percent, handily outperforming the bulk of its international peers.
King shrewdly invested in the hot Pacific Basin emerging markets last year and then adroitly moved over half of that money into the Japanese stock market just as the Nikkei was taking off. This nimble move allowed King to cash in on the Japanese bull market while simultaneously avoiding the sharp correction in the rest of the Pacific Basin.
WARBURG PINCUS INTERNATIONAL EQUITY RETURNS
Alpha is a measure of a portfolio manager's effectiveness. Basically, alpha evaluates how much of a fund's performance is due to the manager's stock picking ability compared to an unmanaged index. Any alpha higher than 0.0 is good. Warburg Pincus International Equity has an alpha of 8.7, which means that King's stock picking ability is outstanding.
Add in King's ability to correctly choose the right countries and you have all the makings for a superior international stock fund.
KEEP UP THE GOOD WORK. Warburg Pincus (800-888-6878), although not a household name, has the unique situation of offering two of the very best funds in the domestic and international stock category.
If you're unimpressed with the performance of your domestic and/or international stock funds, check out the two superstars at Warburg Pincus. They'll make you some money.