Value Added
A Leader Among Large-Caps
By Steven Goldberg, Contributing Columnist, Kiplinger.com
February 4, 2003
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The last three years have been a disaster for shareholders in Glen Bickerstaff’s TCW Galileo Select Equity N fund. The fund plunged 62% from March 24, 2000, through October 9, 2002. You’d have to be crazy to invest in his fund.
Crazy like a fox.
Select Equity (TGCNX) was clobbered almost entirely because investing in large-cap growth stocks was a huge money loser during the bear market -- just as it was a ticket to big profits in the late 1990s.
While no one can say when that style of investing will come back into favor, it inevitably will. And when it does, Bickerstaff is poised to lead the pack. Again.
Apples to apples
His fund offers a valuable lesson: Namely, that when you look for superior funds, you have to compare them to their peers. Bickerstaff’s fund should only be compared to other funds that fish in the same waters that he does -- large-cap growth stocks.
Measured against those funds, Bickerstaff finished below average last year. But 2002 was the first year since he took over the fund in 1998 that he didn’t beat his average competitor.
What’s more, Bickerstaff has put up similarly superior numbers in more than a decade of managing money at other firms.
Bickerstaff looks for fast-growing, large companies that have some sustainable competitive advantage, and that are in expanding industries. Warren Buffett said those companies have "high moats."
Bickerstaff isn’t afraid to buy huge positions in stocks. He only owns 30 stocks currently. And, although he watches his stocks like a hawk, he rarely trades. Turnover was just 12% in 2001, the last year for which figures are available.
Pricing power
Bickerstaff says he did badly last year because he held too much tech -- about 37% of the fund. But "the companies we own have succeeded in difficult times," and will take off when companies realize they need new technology to improve productivity in an era when few firms have pricing power.
His largest holding, Progressive (PGR) is 10% of the fund. The insurance company bypasses agents and sells directly to individuals. That keeps premiums down and profit margins up.
Dell Computer (DELL), a 5% position, is gaining market share from competitors because of its superior cost structure, both in assembling computers to order and selling directly over the Internet.
Microsoft (MSFT), another 5% position, maintains supremacy over office software, and has tens of billions of dollars to establish dominance in other areas.
Amgen (DNA), each 4% positions, are among the biggest and the brightest biotechnology companies. Of course, biotech drugs are patent protected.
Eli Lilly (LLY), a relatively new 4% holding, has a promising pharmaceutical pipeline.
Another relatively new 4% position, AFLAC (AFL), is the biggest player in Japanese supplementary insurance, and is growing rapidly in the U.S.