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Fund buys what countries sell
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April 9, 1999: 6:08 p.m. ET
Manager Peter Vlachos buys privatized telecoms, utilities and oil companies
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NEW YORK (CNNfn) - When world governments are looking to hand off their most valuable assets, fund manager Peter Vlachos goes shopping.
Vlachos's Austin Global Equity Fund has seen some of its holdings soar as much as 445 percent in value by investing in privatized telecoms and utilities from Luxembourg to Australia.
"Privatized companies are very sound and attractive and profitable long-term investments," said Vlachos, 62, a lifetime New Yorker who spends a lot of time on airplanes.
The fund has a coveted five-star rating at Morningstar, a Chicago mutual fund researcher, which puts it in the top 10 percent of all world stock funds.
With $23 million in assets, the fund has suffered somewhat in the first quarter because of pressures in Europe, Vlachos said. One Brazilian holding, Telebras, also was hit hard after the country devalued its currency.
The fund is up 3.91 percent year to date as of Friday and is ranked in the 56th percentile, putting it in the middle of the pack.
But Vlachos likes to look at long-term growth. For example, he bought shares of British Energy (BGY) for $295,593 in October 1996 and they're worth $852,000 today. He paid $185,989 for shares of Telecom Italia Mobile that are worth $1.01 million these days.
"Long term, these companies are going to grow very nicely," he said. "I can't ignore good value."
About 20 percent of the portfolio is in privatized companies, while some U.S. stocks include Cisco Systems (CSCO), Intel (INTC), and Microsoft (MSFT).
Vlachos does not invest in just any privatized company. He looks for good financing, dominant market share and strong management. He's stayed away from Germany's Deutsche Telecom because of the socialist leanings of the country's government.
The fund recently added to its oil positions, after seeing signs of life in Royal Dutch Petroleum. It also is using new money flows to increase holdings in Japan, most recently Tokyo Marine & Fire Insurance Co.
Vlachos is not lightening up in Europe because of the recent slowdown caused by a weak euro. He thinks Europe, including France, has some good values.
"We happen to like both Europe and Japan," he said. "We see the day where we'd lighten up in the U.S."
Is fund giant Fidelity testing the Internet waters? It looks like it is taking the plunge with the Fidelity Fifty Fund.
With new manager John Muresianu at the helm since January, the fund has put half its portfolio in technology holdings - and it appears that a substantial number of those stocks are online companies, said Jack Bowers, editor of the newsletter Fidelity Monitor.
The fund, with $239 million in assets, is up 36.60 percent year to date as of Friday and is number 1 in its category, according to Morningstar.
The fund has had some daily swings of 5 percent since January, when Muresianu took over for Scott Stewart, Bowers said.
"He (Muresianu) has riden this Internet euphoria that has gone on in the first quarter," Bowers said. "His fund has more exposure to the Internet than any other Fidelity fund."
Investors won't get a peek into the changes for another week or so, when Fidelity releases a list of the top 10 holdings at its funds.
As of Dec. 31, 1998, the fund owned Microsoft, MCI WorldCom (WCOM), TJX (TJX), and Amgen (AMGN), according to Morningstar. It earned 15.58 percent in 1998.
"After he (Muresianu) took over, he basically cleaned house and took a different approach," Bowers said.
But Bowers isn't convinced about the changes. He has a hold on the fund, and prefers Fidelity's Aggressive Growth Fund, which isn't so concentrated.
"The Fidelity 50 is a bit of a wild card," Bowers said. "It may do well, but it's not for the faint of heart."
The S&P 500 index has been leading the way in the bull market, but not many managers were able to outperform the benchmark in the first quarter, according to new data from Morningstar, a Chicago fund researcher.
In Morningstar's diversified U.S. stock category, just 876 funds out of 3,560 outpaced the S&P 500, or about 24.6 percent.
As you can probably guess, technology funds scored big among the top 10 funds that beat the S&P 500. The top winner was Nicholas-Applegate Global Technology Fund, up 96.61 percent and the Internet Fund, up 93.07 percent, as of March 31.
Fund manager Garrett Van Wagoner's name appears three times on the list -- the Van Wagoner Technology Fund is up 58.56 percent; the Emerging Growth Fund, a mid-cap growth fund, rose 55.84 percent; and the Post-Venture Fund, a small growth fund, jumped 55.30 percent.
Russ Kinnel, head of equity fund research at Morningstar, said any top winners in such a short time period will be the biggest risk-takers.
"The obvious theme in most of these strong performers is the Internet," Kinnel said. Van Wagoner, for example, owns big stakes of companies like Yahoo! (YHOO) and America Online (AOL).
While those returns might seem tantalizing, Kinnel recommends investors look at a fund's performance over three or five years.
Real Estate mutual funds have gotten hammered recently, but here are some winners and losers, according to Lipper Analytical Services.
The top winner for the week between April 1 and Thursday was Morgan Stanley Dean Witter Institutional Fund Inc. Asian Real Estate Portfolio, class A shares, up 4.47 percent for the week and 11.25 percent year to date; followed by Alpine Equity Trust Alpine Realty Income and Growth Fund, class B shares, up 1.62 percent this week and down 0.45 percent year to date; and Alpine Equity Trust Alpine Global Real Estate Equity Fund, up 1.58 percent this week and down 1.82 percent year to date.
At the other end, the biggest loser was Longleaf Partners Fund Trust, Longleaf Partners Realty Fund, down 2.08 percent this week and off 9.28 percent year to date; followed by FBR Realty Growth Fund, class A shares, off 1.50 percent this week and down 3.51 percent year to date; and Merrill Lynch Real Estate Fund, class D shares, down 1.40 percent this week and off 7.94 percent year to date. 
-- Staff writer Martine Costello covers mutual funds for CNNfn Interactive. If you have any comments about mutual funds, you can contact her at cnnfn.interact@turner.com
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