This concentrated mid- and large-cap fund is up more than 12% year-to-date.
TCW Select Equities (TGCNX)
From Moneyletter
Sitting near the top of the Moneyletter domestic stock funds rankings, TCW Select Equities TGCNX) is outpacing 97% and 98% of Morningstar’s large growth category for the year-to-date and trailing year, respectively (through November 27). That said, its calendar year rankings have been all over the board, reflecting its industry and portfolio concentrations.
TCW Select Equities is a concentrated portfolio, with only 30 holdings. The top ten weigh heavily in the total portfolio, accounting for 47% of assets. That means that the performance of the individual holdings can have a major impact on overall fund results.
Industry weightings definitely do not mirror any major index, with exposures stemming from stock picking. At the top of the list is information technology, where the 36% weight dwarfs the 24% of the fund’s benchmark, the Russell 1000 Growth Index, as well as the 25% weighting for its average peer. Health care’s 23% and financial’s 14% weightings are also well above the benchmark’s 17% and 5%, respectively. At the other end, the fund is significantly underweight in industrials and materials (with no exposure to either sector), and also has underweights in consumer discretionary and consumer staples.
Note that this fund does concentrate on large- and mid-cap stocks, and has 83% of assets in the former category. A number of the fund’s top holdings have been solid contributors to 2015 performance, including Alphabet, salesforce.com, and Visa, as well as the seventh and tenth largest holdings, Facebook and Starbucks.
Blum commented on the fund’s strong performance this year, telling Investor’s Business Daily, “What’s changing is that the market is trying to price a world without quantitative easing.” In other words, investors are now favoring the types of stocks that the fund has long invested in. “Now the market is starting to care about companies that invest in future growth instead of sacrificing it by returning capital to shareholders,” said Blum.
After nearly four years of an up market, the S&P 500 officially entered a correction in August. There was significant volatility and stocks sold off seemingly indiscriminately. That proved an ideal environment for certain stock pickers who like to buy stocks that became cheap for no apparent reason. So during that tumultuous time, Blum added to the fund’s position in American Tower (cell towers), and initiated a position in CVS Health. Blum likes the firm for its 7,800 stores, the purchase of Target’s 1,600 pharmacies, and the fact that it is adding health clinics to its stores. CVS is also a major provider of drug benefits for insurance companies.
Blum concluded the fund’s third quarter commentary by saying that they monitor risk daily. Yet even if US economic growth should stall, “Our playbook will not change. Our clients will continue to own dominant growth businesses supported by solid industry fact patterns that we believe could overwhelm macro volatility and sustain our strong performance over the long term.”
Walter Frank, Moneyletter, www.moneyletter.com, 800-890-9670, December 2015