This aggressive growth fund looks for companies with high growth rates and good fundamentals.
Turner Midcap Growth Investor (TMGFX)
from MoneyLetter
Turner Midcap Growth’s (TMGFX), manager, Chris McHugh, was a founder of Turner, and has been the lead manager of this fund since its inception in 1996. Turner Investments was founded as a growth shop, and this fund holds true to the original ideals. McHugh and team look for growth companies with above-average earnings prospects.
Fundamental analysis is at the heart of stock picking here, but with quantitative analysis behind it and some technical factors weighing in as well. The goal is to pick companies benefiting from improving fundamentals: accelerating earnings growth, improving expectations, and high returns on capital. They also look for industry leaders with strong management, sustainable earnings and growth, successful new products, and improving market share.
The manager will pay a premium for those stocks exhibiting superior growth, and is fairly quick to trade stocks for better opportunities. The average stock stays in the fund for less than a year.
McHugh is backed by a team of 25 analysts and portfolio managers: analysts focus on a specific sector and follow stocks as they advance through the capitalization ranges. An important part of the fundamental analysis is meeting with companies’ managements, competitors, suppliers, and customers, and combining that with financial analysis and independent research.
For the most part, the portfolio’s sector weightings do not deviate much from the benchmark (Russell Midcap Growth Index), though McHugh can weight sectors based on trends uncovered through analysts’ bottom-up research. The fund has fairly consistently been overweight in technology stocks, and recently held an above-benchmark position in health care. McHugh recently has favored Internet and semiconductor firms, as well as companies that provide cloud-based software services.
As of February 28, 2014, the Top Five Sectors and Holdings (% of Total Net Assets) were:
Technology 24.7—Alliance Data Systems 2.3
Consumer Cyclical 20.8—Avago Technologies 2.2
Health Care 16.4—Actavis 2.2
Industrials 13.0—Alexion Pharmaceuticals 2.2
Financial Services 8.0—IntercontinentalExchange 2.1
The fund’s high turnover, aggressive growth approach has usually paid off in good markets. Yet as might be expected, when growth stocks are out of favor, or when the market is in the doldrums, the fund can falter. In 2013, the fund turned in a respectable performance, with a better-than 37% gain outpacing 70% of the mid-growth category. It is faring even better thus far in 2014, with a 3.2% advance besting 98% of its peers. For the last 10 years the fund has an 8.0% annualized return, vs. 7.4% for the S&P 500.
Walter Frank, Moneyletter, www.moneyletter.com, 800-890-9670, April 2014