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Pilgrim funds turn around
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December 7, 1999: 1:25 p.m. ET
Manager Mary Lisanti delivers top returns with technology, semiconductors
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Pilgrim Funds manager Mary Lisanti seems to thrive on volatility.
In the year or so since she took over Pilgrim SmallCap Opportunities Fund and Pilgrim Growth Opportunities Fund, performance has gone from mediocre to top-of-the-heap. A third fund that she helped introduce last summer, Pilgrim MidCap Opportunities Fund, has hit the ground running with triple-digit returns.
All this, in spite of a merger between two investment companies, name changes, and new investing strategies.
"Volatility is a fact of life,” Lisanti said recently. "You want to use it to your advantage.”
The small-cap fund is up 109 percent year to date as of Dec. 2, while the growth opportunities fund is up 70 percent and the mid-cap fund is up 113 percent in the same time, she said.
The names of the funds changed as a result of the merger between ReliaStar Financial Corp. (RLR) and Pilgrim America Capital Corp., which was completed Oct. 29.
The small-cap fund, formerly Northstar Special Fund, earned 6.9 percent in 1998, putting it in the 38th percentile, Morningstar said. The growth fund, previously called Northstar Growth Fund, fared even worse, landing in the 90th percentile with annual returns of 22.8 percent, Morningstar said. The mid-cap fund was previously Northstar MidCap Growth.
What happened?
For one, Lisanti said she took advantage of the crisis in Asia and the volatility in the U.S. market to do some bargain-basement shopping.
"People forget financial panics are easy to fix,” Lisanti said. "We used the correction as an opportunity to trade up. We bought technology, biotechnology, consumer stocks. They were all on sale.”
Lisanti also has taken advantage of a robust IPO market to deliver top returns. One success story is Agilent Technologies (A), a spin-off of Hewlett Packard (HWP) that makes instruments in the semiconductor industry. Lisanti said Agilent has good technology and a strong "reason for being,” similar to Lucent Technologies (LU), an offshoot of AT&T.
Another semiconductor she likes is Lam Research (LRCX), which has undergone new management and other restructuring changes.
"Nobody is paying attention,” she said of Lam.
Other favorite stocks include older technology names such as PMC-Sierra (PMCS), a maker of semiconductor network solutions.
Lisanti also likes business-to-business stocks like Commerce One (CMRC), which provides electronic commerce solutions, and client/server software maker Aspect Development (ASDV).
Among the larger stocks, she likes Gillette (G), Hewlett-Packard and Oracle (ORCL).
Some doubters
Still, despite those stellar returns, some mutual-fund pros think investors should be cautious.
Russ Kinnel, an analyst at Morningstar, puts Lisanti almost on the same risk level as manager Garrett Van Wagoner.
"She’s super-aggressive, and has a very volatile strategy,” Kinnel said. "You have to recognize (Lisanti) is way out there on the risk curve.”
Like Van Wagoner, one of Lisanti’s previous funds, BT Investments Small Cap Fund, benefited from a robust IPO market in the early 1990s, Kinnel said. But when the sector crashed in mid-1996, the returns suffered. Another fund that Lisanti managed, Strong Small Cap Fund, performed so poorly that the fund group quietly "swept them under the rug,” Kinnel said.
"The IPO market was caving, so performance was awful,” Kinnel said. "IPOs are very much feast or famine.”
Kinnel recommends people use a strategy of "dollar-cost averaging” to get into such risky funds, where you invest a little money at a time instead of taking a big stake all at once.
"It’s very risky to buy after you’ve seen this big run-up,” Kinnel said.
Lisanti disagrees with any similarity with Van Wagoner, and she said her record at the Strong fund was good after a rocky six-month start.
To compensate for a more volatile market, Lisanti owns about 100 stocks in each fund, and said no holding can represent more than 3 percent of the portfolio. The funds also won’t make any investing theme more than 25 percent of the portfolio.
As far as 2000 is concerned, Lisanti thinks it will be a "market of stocks” rather than a stock market, where good choices will be even more crucial.
"Everyone is going to have volatility,” Lisanti said. 
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