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Fund dials profits at AT&T
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April 23, 1999: 6:15 p.m. ET
And value managers who own IBM may be happy after Big Blue's 1Q gains
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NEW YORK (CNNfn) - When fund manager Doug Eby bought shares in AT&T about two years ago, the company was getting stung by competition from the Baby Bells, pricing pressures and unhappy shareholders.
But Eby, co-manager of the $1.7 billion Torray Fund, saw potential despite the murky scenario after deregulation broke open the telecommunications sector.
He saw a company with a strong brand name that would wind up ahead of its smaller rivals. Since then, the fund's stock has tripled in price.
"They were in the best position to create global, one-stop shopping for all services," Eby said, after AT&T (T) announced a surprise $58 billion bid for cable company MediaOne Group Inc. (UMG) this week.
Eby said nobody knew that Chairman Michael Armstrong would take the helm with such a focused plan to break into the local telephone market and the Internet through cable acquisitions.
Before Armstrong took over, the biggest complaint about AT&T was that it had no clear strategy to break into the local market, he said.
The fund owns roughly 1.35 million shares of AT&T representing about 4.5 percent of the portfolio. The fund is ranked five out of five stars at fund-tracker Morningstar for risk-adjusted returns, putting it in the top 10 percent of its category.
"Clearly Mike Armstrong's strategy is to get into the home," Eby said. "The story is changing from one where the company needs to defend its long-distance market share to one where it's making a major growth move."
Some value managers who own IBM may have had reason to smile this week after Big Blue announced it had beaten first-quarter estimates by a large margin.
"We've owned the stock for more than five years and it's been a long-term, very successful turnaround for us," said David King, a co-manager of the Putnam Fund for Growth and Income.
But King and other value managers said they're not ready to sell their stake just yet -- meaning they think the stock has a lot more room to grow. Value managers like to sell a stock once it starts getting hot.
"It's nice they had a positive surprise in the first quarter, but our investment decision isn't made on that," King said. "It's based on cheapness and change…They're continuing to execute positive change."
King sees three reasons to hang onto his shares. The company's price-to-earnings ratio of 24 remains lower than the average of the S&P 500; its revenue and earnings continue to shift towards services and software; and it has used its cash to buy back stock, which increases the earnings-per-share.
The $23 billion fund and other share classes own about 3.8 million shares of IBM, representing about 2 percent of its portfolio.
The high-flying Janus Twenty Fund closed indefinitely to new investors on April 19 because assets were soaring so rapidly.
With top-performing names such as America Online (AOL), Dell Computer (DELL) and Microsoft (MSFT), assets in the fund grew $8.9 billion in the first quarter of 1999, compared with $9.7 billion in all of 1998.
The $26.7 billion fund earned about 25 percent year to date as of Thursday and a healthy 73 percent in 1998. It also has a coveted five-star label from Morningstar.
"We're trying to be very proactive, in the best interest of the shareholders," said Janus spokeswoman Shelly Grice.
By limiting the size, it will be easier for manager Scott Schoelzel to focus on the top 20 to 30 names, she said.
Lastly, here are some winners and losers in Lipper's micro-cap fund category, which includes funds that invest in companies with a market capitalization of less than $300 million at the time of the purchase.
At the top of the list is Wasatch Micro-Cap Value Fund, earning 5.58 percent for the week between April 15 and April 22 and down 4.59 percent year-to-date; followed by Maxus Aggressive Value Fund Investor Shares, up 4.86 percent this week and up 12.29 percent year to date; and Pioneer Micro-Cap Fund Class B shares, up 4.81 percent this week and up 6.89 percent year to date.
At the other end, the biggest loser was Fremont U.S. Micro-Cap Fund, down 1.79 percent this week but up 13.14 percent year to date; followed by Black Rock Micro-Cap Equity Portfolio Investor Class B Shares, off 0.25 percent this week and up 22.76 percent year to date; and PBHG Limited Fund PBHG Class Shares, which broke even for the week and lost 9.87 percent year to date.
-- Staff writer Martine Costello covers mutual funds for CNNfn.com. If you have any comments about mutual funds, you can contact her at cnnfn.interact@turner.com
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