TIP SHEET: Nationwide Flies Under Radar But Invests Big
06/26/2012| 03:16pm US/Eastern
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--Nationwide Growth is modestly besting S&P 500's total returns as well as those of its peer funds
--Fund is exposed to tech stocks with strong product cycles that can result in upward revisions to earnings estimates
--Performance has fallen a bit of late on worries about international growth but Nationwide stays bullish on China
By John Kell
Nationwide Growth A (NMFAX) might be a relatively small fund, but when it comes to investing, it picks some of the biggest names on Wall Street.
Portfolio manager Chris Baggini says the fund typically owns between 50 and 80 stocks--a diverse portfolio that aims to invest in companies that have potential for positive earnings revisions that could result in expanded valuations.
Efforts to rebalance the portfolio are relatively fluid, and Mr. Baggini said the fund's holdings have a turnover between 30% to 40% per year.
"Every stock we go into, every idea we go on has a target price," said Mr. Baggini. "As stocks appreciate to that target price, our investment in that stock changes."
He said the fund, which was incepted in 1961, has a "certain degree of nimbleness" as a smaller portfolio, a position he views as an advantage in a volatile marketplace.
According to Morningstar, the $146 million fund has returned 6.6% year-to-date through Monday, modestly besting the S&P 500's total returns, as well as those of the large growth category. Over the three years through Monday, Morningstar shows that the fund's annualized total returns of 14.8% are slightly behind the S&P 500's 15%, but ahead of the category's 13.6%.
The portfolio's top holdings are in the information technology and consumer discretionary sectors, including stakes in Apple Inc. (>> Apple Inc.)--nearly 10% of the fund's holdings, according to Morningstar--Google Inc. (>> Google Inc), Qualcomm Inc. (QCOM) and Coca-Cola Co. (>> The Coca-Cola Company). The fund is underweight in financials, materials and energy.
The portfolio managers declined to discuss the performance of individual stock holdings.
With the portfolio's focus on many technology stocks, Mr. Baggini said the fund is aiming to stay exposed to names that have a strong product cycle that can result in upward revisions to earnings. Those firms are often looking to redeploy their capital, either through the growth of their business, giving back money in the form of dividends or buybacks and by making acquisitions.
Many of the companies the Nationwide Growth invests in are players the portfolio managers believe can "win" on the global stage, including China. Mr. Baggini said though there has been some bearish macroeconomic commentary on China's growth rate of late, he believes the tech and consumer discretionary companies his fund has stakes in will do well as that market grows.
Nationwide Growth's performance has fallen a bit the past three months, and is underperforming the S&P 500's total returns. Mr. Baggini said investors were fleeing some international growth names of late, and that movement has been reflected in the portfolio.
He said investors should be mindful that the growth rate in China exceeds any other major market in the globe and that the nation's population is three times that of the U.S.
"For investors in this fund, strategically we want to still be invested in China," said Mr. Baggini.
Jeff Tjornehoj, a Lipper senior research analyst, said Nationwide Growth tends to stick with the index and at times surpass it, but doesn't get very far ahead.
"That's not a bad place for an investor who would like a manager to beat the index if they can but not get hurt too bad if they fail, because it's not going to take a lot of risks and stand out from the crowd," said Mr. Tjornehoj.
The fund's minimum investment is just $2,000, which the Nationwide team said makes it available for all types of investors.
Mr. Tjornehoj said the fund is primarily sold through insurance agents, rather than brokers or advisors, and thus the portfolio may be trying to appeal to clients who are already speaking to Nationwide about insurance-related matters. He said the minimum investment threshold is more appropriate for that target audience, who likely isn't wealthy.
(John Kell is a general assignment reporter covering alcohol and tobacco companies, drug stores and car-rental firms for Dow Jones Newswires. He can be reached at 212-416-2480 or by email at john.kell@dowjones.com.)
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