NEW YORK (Money Magazine) - In the world of mutual funds, winning streaks provide some badly needed drama, and the T. Rowe Price Capital Appreciation fund has a hot one going.
It has racked up 12 straight years of gains -- the only U.S. equity fund to do so. Unfortunately, most of that streak was overseen by former manager Richard Howard; Stephen Boesel took over just 20 months ago, after 13 years at T. Rowe Price Growth & Income.
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And last year's gain was a real squeaker: Boesel eked out a scant 0.54 percent return. "Hey," he notes, "it had a plus sign in front of it." The fund's up 3.6 percent this year.
A proven recipe
It's tempting to yield to drama, focusing on whether Boesel can keep the winning streak alive. But the real question is whether, over the long haul, he can match Howard's history of producing profits in a wide range of market environments. So far, he's shown a knack for executing Howard's strategy with his own particular spin.
Capital Appreciation remains a "balanced" portfolio, with stocks typically representing no more than 60 percent of assets. And those stocks remain strongly tilted toward the value end of the spectrum.
The portfolio is filled with shares of value-fund stalwarts like cyclical commodity plays (Alcoa, Potash) and high-yielding energy names (Amerada Hess, Marathon Oil).
But while Howard scored with midcap and even small-cap bets, Boesel has shifted firmly into large-cap stocks, which he knows well from his days at Growth & Income.
The fund's secret ingredient, pioneered by Howard, is its stake in convertible bonds (roughly 25 percent of assets). Like a regular bond, a "convert" usually pays interest, but because the investor can choose to swap the bond for a specified number of shares of the issuer's common stock, converts are often regarded as a backdoor play on the equity.
The new ingredient
But Boesel has added some spice of his own. Many of the companies in his convertibles portfolio are a who's who of busted growth names such as Gap, Corning and EDS.
Boesel "definitely has a nice hedge going," says Morningstar's Brian Lund. In a stumbling market, his largely defensive stock portfolio will provide protection. And if the market turns bullish -- as it has recently shown some signs of doing -- the growth-oriented converts kick in.
No question, Boesel has added what Howard calls "a much growthier element than I ever had," but the underlying structure of the portfolio remains the same. "Manager changes are always unnerving," says an executive with a large insurance firm for which Boesel (like Howard before him) runs a Capital Appreciation clone.
And her guess as to whether Boesel can maintain that winning streak? While it makes for interesting banter, she's far more concerned about how he performs over the long run. "Our educated guess is that the results will continue."
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