Big Returns for Bogle Small Cap Growth
The son of Vanguard’s founder uses computer models to identify attractive small-company stocks.
Many stock pickers are tire kickers. They make judgments about companies by, among other things, talking to executives, competitors and customers. By contrast, quants (short for quantitative analysts) are computer jocks. They try to take the emotion out of investing by relying on computers to rank stocks for buying and selling.
One of the best stock-picking quants in the mutual fund world is John Bogle Jr., who runs Bogle Small Cap Growth (symbol BOGLX). The fund tanked during the 2007–09 bear market, losing 66%, but it has rebounded strongly. Including the first five months of 2013, it ranked in the top 16% of its category (funds that invest in small-company “blend” stocks) in four of the past five years.
Bogle’s model homes in on U.S. companies that are likely to beat analysts’ earnings estimates. It also contains a value component, identifying stocks that are cheap relative to others in their industry on the basis of price-to-sales and price-to-cash-flow ratios. Bogle buys roughly the top 150 ranked stocks, making sure to keep his fund’s sector weightings closely in line with those of the Russell 2000 index.
Bogle trims a holding when it reaches 1.5% of the fund’s assets. He’ll also sell if his model shows signs that a company is manipulating its accounting practices to beat earnings estimates. At last report, top holdings included Multimedia Games, Genworth Financial and Krispy Kreme Doughnuts.