Quick Take: The managers who oversee the Thompson Plumb Balanced Fund (THPBX), which owns a mix of stocks and fixed-income investments, want to hold shares of growing companies. But they prefer buying them on the cheap.
Their approach to investing in debt securites reflects caution: The fund leans towards high-quality, intermediate-term corporate bonds.
The fund has outpaced its peers lately and over the long term. Thompson Plumb Balanced lost 5.7% this year through November, while the average balanced fund was off 8.5%. The fund returned 8% on average for the five years ended last month, compared with a 2.3% average gain by similar funds. For the ten years ended November 31, Thompson Plumb Balanced gained 10.6% on average, versus 7.5% for its peers.
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The Thompson Plumb Balanced Fund uses fixed-income securities to hold things steady while hunting for more rewarding investments.
Owning a conservative collection of bonds enables the team that runs the fund to look “for real opportunities to make people money, and that’s going to be with stocks,” says lead portfolio manager Thomas Plumb.
The $129-million fund typically keeps about two-thirds of its assets in equities. Plumb and the other members of his team, David Duchow and Timothy O’Brien, seek growing companies whose shares strike them as reasonably priced.
To pick the fund’s 40-45 stocks, the managers scan for businesses that consistently generate above-average earnings, and whose stocks are trading at a 30%-50% discount to what they believe the enterprise is worth. In addition, they prize industry leaders with solid balance sheets and high returns on invested capital.
Though the trio will consider companies of any size, Duchow says they have been focusing on large ones since the summer, when the soft stock market gave them a chance to go bargain hunting.
For example, in June, the trio began buying Genl Electric (GE), which now is the fund’s top stock. The managers like the conglomerate’s global footprint as well as its diverse businesses — ranging from appliance manufacturing to broadcasting — which they see as providing the tools to build up earnings. Plumb also thinks the company’s GE Capital financial services unit will strengthen as the U.S. economy picks up steam.
“We think that’s an attractive company that we can hold for a long period of time,” Plumb says.
Plumb cites drug distributor McKesson Corp (MCK), the fund’s fifth-largest stock holding, as the kind of company he and his colleagues like. The managers say they bought a stake in the company, which also manages computer systems for health care concerns, in July.