Quick Take: The SB Capital & Income/Smith Barney A (SOPAX) can invest in any kind of security anywhere around the world. The only thing it doesn’t own right now is emerging market debt, says lead portfolio manager Marc McAllister.
Except for limiting holdings in illiquid securities, the fund’s prospectus places no restrictions on its asset allocation. The equity portion of the portfolio includes undervalued stocks and shares of growing companies.
Smith Barney Capital & Income’s returns have consistently kept it ahead of its peers. For the one-year period ended in March, the fund rose 35.6%, versus 22% for the average balanced large-cap blend fund. For the ten years ended in March, the Smith Barney fund returned 10.4%, on average, versus 8.4% for similar funds.
Though the fund’s go-anywhere style and ability to change its asset allocation has made it more volatile than its static balanced fund category, investors have been rewarded for the extra risk.
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The managers of the Smith Barney Capital & Income Fund can buy whatever they want to. Their investment universe encompasses, among other things, stocks, bonds, and convertible and derivative securities of businesses based in the U.S. and abroad.
“We have a great deal of flexibility to move money back and forth among different asset classes,” says Marc McAllister, who heads the team overseeing the $2.1 billion fund.
Stocks and convertibles make up about 64% of the fund’s total assets currently, and 28%, mostly high-yield bonds, is in fixed-income securities. Cash accounts for the remaining 8%.
McAllister, who became lead manager of the fund in May 2003, is responsible for determining how it spreads its money around. His decisions take into consideration short-term market conditions and economic factors.
McAllister personally selects about 20% of the fund’s holdings, including real estate investment trusts, or REITs, and what he calls the team’s “best ideas,” that is, investments judged to potentially offer the greatest rewards with the least risk.
Because it is seeking yield, McAllister says the fund has been favoring junk bonds over those rated investment grade. “We think this year is one when you can collect your coupon in the high-yield market, and that’s not too bad,” says McAllister, who expects these securities to generate total returns of 7.5%-8% in 2004.
For the equity portion of the fund, the managers can buy undervalued or growth stocks of companies of any size. However, the fund tends to own big businesses, McAllister says, because their shares are easier to trade.
On the growth side, the managers seek companies whose profits top their competitors and, ideally, analysts’ estimates. Sound or improving balance sheets are prized, too.