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June 27, 2005 at 08:00 PM
The Putnam Vista Fund/A (PVISX) is managed by a former fundamental research analyst and a former quantitative analyst. As a result, stock picking in this $2.8-billion portfolio reflects both investment methodologies.
Kevin Divney, the ex-quantitative research analyst, identifies “inefficiencies” in the equity markets that can be exploited. “Essentially, we look for growth and combine that with a heavy emphasis on quality and valuation,” he said.
Divney and his partner, Paul Marrkand, the former fundamental research analyst, have managed the portfolio since July 2003.
Divney acknowledges there are strengths and weaknesses to both approaches — fundamental and quant — “but if you leverage both methods and integrate, you will likely generate more consistent out-performance over time,” he asserts.
For the one-year period ended May 31, 2005, the fund gained 12.9%, versus 8.1% for the average mid-cap growth portfolio. For the three-year period, the fund registering an average annualized return of 6.5%, versus 6.0% for its peers. However, those results were achieved with greater volatility.
As co-chief investment officers of Putnam’s mid-cap growth team, Divney and Marrkand oversee a total of $8.5 billion in assets, including institutional products. Divney and Marrkand also co-manage the Putnam New Opportunities Fund/A (PNOPX), also ranked 3 Stars by Standard & Poor’s.
“A lot of growth investors don’t focus on quality and valuation,” Divney noted. “It’s very difficult to assign a valuation target on a company that is growing swiftly, because there are many uncertainties, and, consequently, a high degree of error in making forecasts. We balance our desire for high growth, with attractive valuations and quality management and business models.”
The fund invests in mid-cap companies across an array of industries. Typically, stocks in the portfolio are relatively well-established, but continue to provide high annual growth and earnings visibility. Divney and Marrkand have a universe of about 1400 stocks to select from, with market caps between $1 billion and $10 billion. They will, however, go above or beneath that range as long as a company remains an attractive investment.
As of May 31, 2005, the fund’s top ten holdings were Linear Technology Corp. (LLTC), Citrix Systems Inc. (CTXS), Claire Stores Inc. (CLE), United Defense Industries (UDI), C. R. Bard Inc. (BCR), Veritas Software Corp. (VRTS), Bear Stearns Cos. (BSC), Varian Medical Systems Inc. (VAR), Wellpoint Inc. (WLP) and Sandisk Corp. (SNDK). These represented 19.82% of the portfolio’s assets. The fund currently holds 107 stocks, but typically keeps about 90 positions.
As of May 31, 2005, the top sectors in the portfolio were technology, 28.0%; healthcare, 19.0%; consumer cyclicals, 16.5%; financials, 9.2%; capital goods, 8.0%; and consumer staples, 7.7%.
While the stock-picking process is strictly bottom-up, the fund seeks to closely match the sector weighting of its benchmark over the long term to control risk, the Russell Mid-Cap Growth Index. As a result, Divney explained, the top ten holdings don’t necessarily represent the managers’ favorite picks.
