Unconventional Holdings for a Growth Fund

Who could've imagined a few years ago that Mosaic Corp., a producer of fertilizer, would end up as the biggest holding in Brandywine Blue, a fund managed by a pre-eminent growth-stock shop? Or that its Canadian rival, Potash Corporation of Saskatchewan, would also wind up among Blue's ten biggest holdings. After all, Blue and its older sibling, Brandywine fund, built their reputations by buying stocks in such traditional growth industries as technology and health care.

But whether Mosaic (symbol MOS) or Potash (POT) are traditional growth stocks matters not a whit to manager William D'Alonzo and his team at Friess Associates, which runs the Brandywine funds. "We build portfolios one company at a time without regard to the makeup of market indexes, as our goal is to outperform the indexes, not mimic them," says D'Alonzo. "What constitutes a growth stock for us is where we see earnings grow, and what drives earnings growth is the demand for products and services."

In choosing stocks for Blue, D'Alonzo looks for large companies that are generating earnings growth of 20% to 30% per year and that he thinks can beat analysts' estimates. A candidate must have a stock-market value of at least $6 billion (Brandywine fund leans toward midsize companies).

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D'Alonzo, who has managed Blue (BLUEX) since 1991, and more than 30 researchers interview company executives, competitors, customers and suppliers to get the needed insight on broad trends and to identify companies that are best positioned to capitalize on them.

That approach led Blue to Mosaic. "As the economies in Asia and Brazil picked up and created wealth for their citizens, the demand for protein from meat and poultry also increased," says D'Alonzo. "Crops in these countries had to handle the demand to feed cows and chickens." The boom in ethanol, which requires vast amounts of corn, has also boosted demand for fertilizer.

Shares of Mosaic and Potash, which benefit from similar forces, have soared. Over the past year, Mosaic has climbed four-fold, while Potash has nearly tripled.Other big holdings, as of March 31, were Thermo Fisher Scientific (TMO), a maker of scientific instruments; Costco Wholesale (COST), the membership-warehouse chain; Teva Pharmaceutical Industries (TEVA), an Israel-based maker of generic drugs; and Oracle (ORCL), the software company.

After suffering through what D'Alonzo calls an "ugly" first quarter, during which Blue lost 11%, the fund has rebounded strongly. Year-to-date through May 19, Blue lost 1%, one percentage point better than Standard & Poor's 500-stock index.

Long-term results are solid. Over the past five years, Blue returned 17% annualized, beating the S&P 500 by an average of 5.5 percentage points per year. Over the past ten years through April 30, the fund gained 8% annualized, topping the index by an average of four points per year.

Brandywine Blue is a fine way to invest in large, fast-growing companies. The fund requires a $10,000 minimum initial investment and charges 1.12% in annual expenses.