Eric Fischman, manager of the $2.5 billion MFS Growth Fund, beat 95 percent of his rivals this year by relying more on technology and energy stocks.
The increasing market for Web-linked smart phones, including the BlackBerry model he fiddled with during an interview in Boston, influenced his top two picks: Google Inc., the world's most popular search engine and developer of the Android mobile-phone software, and BlackBerry maker Research In Motion.
"I'm looking for growth areas and trying to find who the beneficiaries are within that,'' said Fischman, 43.
MFS Growth declined 7.7 percent this year while its benchmark Russell 3000 Growth Index fell 11 percent, data compiled by Bloomberg show. That's good enough to top all but 6 percent of funds that invest in large companies whose sales and earnings are growing faster than the overall market, according to Morningstar Inc., the Chicago-based research firm.
The fund, run by Boston-based MFS Investment Management, had a three-year Sharpe ratio of 0.57 through June 30, compared with 0.18 for competing funds, according to Morningstar. A higher ratio means a fund has a better risk-adjusted return. Morningstar gives MFS Growth three out of five stars.
Fischman had 23 percent of the fund's assets in technology stocks and 14 percent in energy companies as of May 31. As a percentage of assets, his telecommunications holdings are more than double those of peers, while software and energy are 40 percent bigger.
Mobile Googling
MFS Growth suffered in the first quarter when Google fell 37 percent. Fischman raised his stake in April and the Mountain View, California-based company bounced back with a 23 percent advance since March 31. Google plans to deliver its Android operating system this year, enabling mobile-phone users to download thousands of programs, from games to social networks to videos.
Whatever happens with Android, Google will gain from the use of smart phones because they'll drive Internet traffic, Fischman said. "You're going to see a reacceleration of Internet search driven by phones, and who's going to win from that?'' he said. "Google wins if our smart-phone thesis plays out.''
Fischman also looks for companies with pricing power, pointing to Apple Inc. as an example. The company increased its average sales price while unit prices declined at Dell Inc. of Round Rock, Texas, and Palo Alto, California-based Hewlett- Packard Co., he said.
Roughnecks
"It's the Apple brand," he said. "People pay more to have an Apple on their desk than a Dell." Apple, based in Cupertino, California, gained 33 percent in the past 12 months in New York trading.
While bullish on energy because of high global demand, Fischman said he has steered mostly clear of oil and gas producers who need to invest heavily to increase supplies.
"Who wins? The picks and shovels," he said. "The guys that build the rigs, the guys that service the rigs."
Fischman increased his stake in National Oilwell Varco Inc. in April and May, making it his fifth-biggest holding. The Houston-based company is up almost 45 percent since March 31. The manager, who holds a master's degree in business administration from Columbia University in New York and a law degree from Boston University, served as a staff attorney at the Federal Reserve Board in Washington from 1992 to 1994. He joined MFS as a research analyst in 2000 and has managed the Growth Fund since 2004, guiding it to an average return of 11 percent during the past three years.
Paying for growth
Growth investing is due for a comeback even before stock markets recover from their current slump, Fischman said. The Standard & Poor's 500 Index fell more than 14 percent this year. "In a slow-growth economy, people will pay for what they think will grow faster," he said.
Fischman said he has protected his fund by using what he calls ballast. This is his term for steady industrial performers that he believes he can count on to provide solid earnings growth. He owns Lockheed Martin Corp., the world's largest defense company, and Danaher Corp., maker of Craftsman tools. Bethesda, Maryland-based Lockheed rose 9.4 percent in the past year and Washington's Danaher is little changed.
"It's good that some portion of the fund is a bit defensive," Denver-based Lipper analyst Jeff Tjornehoj said. "The all-or-nothing gunslinger's portfolio would see a lot more volatility. His is in line with peers."
MFS, which managed $184 billion as of March 31, is a unit of Toronto-based Sun Life Financial Inc., Canada's third-largest insurer by assets.
The author is a Bloomberg News columnist. The opinions expressed are his own.
