The easiest way to follow a manager’s picks is to check the fund’s top holdings, accessible at several financial websites. You can also find this information at fund websites along with management commentary. The commentary sometimes discusses individual stocks, which might be interesting but should be taken with a grain of salt because it’s in the manager’s interest to say positive things about his picks.
A harder but potentially more rewarding method is to compare the fund’s entire portfolio from quarter to quarter. By doing this you can:
• Spot new investments that aren’t large enough yet to be among the top holdings.
• Identify stocks the manager already held and recently found worthy of additional investment.
• Gain a more complete picture of significant portfolio moves than what’s provided in a typical Morningstar report.
Fund companies usually make it somewhat difficult to track portfolio holdings. Their websites will include the most recent information, but it’s less common for them to provide the holdings for the past several quarters.
For this you’ll find the Securities and Exchange Commission’s EDGAR database most helpful. Many of the public filings of mutual funds include complete portfolio information, and EDGAR allows access to previous statements. At the SEC’s website, click Filings & Forms (EDGAR), then Search for Company Filings and finally the Mutual Funds link. Documents that provide holding information — the number of shares, cost and total value for each stock — include the N-Q, the quarterly schedule of portfolio holdings of management investment companies; the NSAR-B, the annual report for management companies; and N-CSR, the certified shareholder report.
Keep in mind that the information might be a little dated. There’s a lag between when a quarter ends and when the fund company is required to submit the document to the SEC. For a fund with high turnover, meaning that the manager is making a lot of trades, this can be an important issue.
But for buy-and-hold managers who aren’t constantly scrambling in efforts to improve their performance, the public filings are more relevant. As an example, we recently compared the portfolio of the Baron Small Cap Fund (ticker BSCFX), managed by Cliff Greenberg since 1997, as it stood at both the end of June and of September 2007. Greenberg is a respected investor in small growth stocks he hopes will double over four years. Although the fund’s turnover is 37 percent, higher than our preference of 20 percent or less, it’s still a respectable figure.
To find Baron Small Cap holdings, we had to scroll past information about the company’s other funds in each of the relevant documents. When comparing quarterly holdings, we took note of several moves. One of them was increasing the fund’s stake in National CineMedia (ticker NCMI), which is in the display advertising industry. Greenberg bought an additional 750,000 shares during the third quarter, an increase of 50 percent. The stock’s value in the portfolio rose from $42 million to $50.4 million. (This article is for educational purposes only. No investment recommendation is intended.)
He also escalated the fund’s investment in Marvel Entertainment (MVL), adding 750,000 shares to the fund’s previous holding of 850,000 shares.
Among new stocks, Greenberg made a rather large initial investment in research and consulting firm Gartner (IT), acquiring 1.7 million shares for $38.2 million. Other new stakes included Inverness Medical Innovations (IMA), Masimo (MASI) and TomoTherapy (TTPY), all in the medical equipment field; and Acadia Realty Trust (AKR) and Digital Realty Trust (DLR).
As it turns out, the list of top holdings likely would be of more interest to BetterInvesting-style investors than the stocks in which Greenberg made initial acquisitions or increased current stakes. Many in the latter category just aren’t ready for prime time for individual investors seeking companies that have a proven history of quality management. Some had no history of earnings or only a couple of years of financial results available, while other companies had overly lumpy sales and earnings growth. But a few of the stocks might be worth following as they develop histories.