Last month I found 37 mutual fund managers who have proved their skill (in my view) by outperforming the S&P 500 over the last decade by enough make a real difference for shareholders.
Of these, 16 managers run funds that don't charge a load and are still open to new investors.
These are the managers I am using to demonstrate the results of investing with great managers when they are performing.
The four managers I recommended at the end of June are off to a good start.
But with a trade war looming, let's make sure we have our money in the hands of the best managers.
Performance Review as of July 23, 2018
| Style | Fund | Symbol | Manager | July MTD Return |
|---|---|---|---|---|
| Technology | Firsthand Technology Opportunities | TEFQX | Kevin Landis | 3.42% |
| Biotech | Fidelity Select Biotech | FBIOX | Rajiv Kaul | 4.48% |
| Healthcare | Delaware Healthcare I | DLHIX | Liu-Er Chen | 3.22% |
| Global Mid-Cap | Oppenheimer Global Opportunities | OGIYX | Frank V. Jennings | 3.24% |
| Benchmark | S&P 500 ETF | SPY | 3.04% |
These are the four managers I recommended in June. They are all ahead of the market for July so no yellow or red flags for performance this month.
The Talent Bench
It is not clear yet how how a trade war will affect stocks. But it seems obvious that there will both winners and losers.
Our objective is keep the bulk of our portfolio invested with great managers in the areas of the market offering good returns.
This strategy works best if there is a strong bench of great managers to select from, even if some of the managers have not performed well recently, because we can never tell when a manager's investment style is about to come back into favor.
In the last update, there were other great managers we did not select either because they are not performing well this year or their strategies overlap too much with one of the managers I recommended.
This month I have made adjustments to screen out funds that charge a load or that are closed to new investors.
Applying the new restrictions gave me 12 great managers who we can consider to be our talent bench.
We have looked at many of the 12 previously, but there are two new managers on the list this month who are worth taking a closer look at.
Primecap Odyssey Growth (POGRX)
Theo A. Kolokotrones and Joel P. Fried have co-managed this fund November 1, 2004. Both of them also manage the Primecap Odyssey Aggressive Growth Fund (POAGX) which I didn't recommend last time only because it is closed to new investors. This fund's investment strategy overlaps with the Oppenheimer Global Opportunities Fund but both track records are so impressive that I would hate to be out of either fund if it were closed to new investors.
Consequently, I am taking half of the amount allocated to Oppenheimer Global Opportunities and putting it into Primecap Odyssey Growth.
This move does not increase our exposure to the strategy but gives us two great management teams instead of one.
Down the road, we may decide to use one fund more than the other, but I don't think we should ever exit either fund completely to avoid being locked out of it in the future.
Fidelity Select Medical Tech (FSMEX)
Edward L. Yoon has managed this fund for the past 11 years. We have already recommended Delaware Healthcare I and Fidelity Select Biotech but I don't see much of an overlap with Fidelity Select Medical Tech.
Healthcare is a giant sector which encompasses about 18% of the U.S. economy.
There are many segments of the Healthcare sector that require a different investment expertise than others.
For example, a manager with expertise in pharmaceuticals should not be our first choice to pick hospital stocks. Medical Tech is sufficiently different from Healthcare and Biotech that I can justify recommending this fund without taking anything away from Healthcare or Biotech.
My Take
Although all four managers I recommended are doing well in July, adding Fidelity Select Medical Tech and moving 50% of our investment in Oppenheimer Global Opportunities to Primecap Odyssey Growth makes the portfolio more likely to perform going into what could be a volatile period.
In How To Prepare Your Portfolio For A Trade War, Nate Pile, one of my managers, told me he was selling some tech and adding to his biotech holdings.
I like his thinking. Investors don't seem to be aware of how much a trade war can hurt tech-stocks, but healthcare, in general, is much less vulnerable.
Think about it this way.
People will put off buying a new iPhone if the price was increased 25% due to new tariffs since an iPhone is mostly made in China.
But I can't see anyone putting off a medical need because of a tariff.
By giving Medical Tech the same weighting as the other investment styles, we are reducing our weighting in Tech and thus our vulnerability to a trade war.
This article is part of a series I write for those who invest in mutual funds. To be notified when the next installment is published, click here.
