Thomas Marsico has made General Electric and FedEx two of the Marsico Growth Fund's 10 largest holdings because he said the U.S. companies stand to gain...
Thomas Marsico has made General Electric and FedEx two of the Marsico Growth Fund’s 10 largest holdings because he said the U.S. companies stand to gain from the world’s fastest-growing economies, led by China.
“We want to be exposed to companies that benefit from growth in the developing markets,” Marsico said from his office in Denver. He said he’s entering these markets by buying shares of U.S.-based companies because of stricter accounting and governance standards.
The $1.6 billion Marsico fund, which had investments in 53 companies at the end of November, rose at an annual rate of 7.1 percent during the past three years, ranking eighth of 184 large-company growth mutual funds tracked by Bloomberg. The fund climbed 14.38 percent last year, outpacing the 10.88 percent total return of the Standard & Poor’s 500 index.
GE, based in Fairfield, Conn., expects $5 billion of sales from China this year. FedEx plans to increase the number of Chinese cities that it covers by 50 percent to 300 this year. The Chinese economy grew 9 percent last year, more than double that of the U.S., according to the International Monetary Fund (IMF). China is expected to expand 7.5 percent this year.
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GE, the world’s largest company by stock-market value, has forecast that sales in China will increase 42 percent from last year’s $3.5 billion and account for about 3 percent of total revenue. Overall sales will rise 10 percent from about $150 billion in 2004, GE predicts.
“They have size, scale, market share, pricing flexibility and financial strength,” Marsico said of General Electric.
FedEx pushes into China
FedEx, the second-largest U.S. package-delivery company, registered a 12 percent increase in shipments from outside the U.S. in the three months through November, driven by gains in Asia as manufacturers shipped more goods.
The Memphis, Tenn., company has aggressively developed its FedEx Ground unit, he said. Revenue at FedEx Ground rose 20 percent to $1.17 billion in its most recent quarter. Shares of FedEx gained 46 percent last year, their best return since 1998.
Marsico, who holds a master’s degree from the University of Denver, founded Marsico Capital Management in 1997 after leaving Janus Capital Group. He managed two of Janus’ most popular funds, Janus Twenty and Janus Growth & Income, in an 11-year career, winning Morningstar’s award for top fund manager in 1989.
He sold a 50 percent stake of his firm to Bank of America, based in Charlotte, N.C., for $150 million in 1999. The bank bought the rest of Marsico’s firm a year later for $950 million. Today, Marsico oversees a total of $44 billion. He doesn’t use computer software or Wall Street analysis to select stocks, although he consults outside research.
Marsico and a team of 19 investment professionals “jawbone thoughts and theories” when picking stocks. He favors companies whose businesses are difficult to duplicate and have overcome big barriers to entry. That gives them strong market positions and the ability to increase prices and profits, he said.
Focusing on top holdings
His fund is known for putting large amounts of money into its top holdings such as UnitedHealth Group and Genentech, said Bridget Hughes, an analyst at fund-industry-research firm Morningstar in Chicago. He takes an aggressive approach and “doesn’t feel like he needs to be pigeonholed” as a large-cap growth manager, she said.
One-quarter of the Growth fund’s assets are invested in five companies, with UnitedHealth, the biggest holding, accounting for 7.8 percent at the end of November.
While the strategy has led to superior performance in the past two years, the fund tends to suffer in less favorable times, Hughes said.
In the bear market from 2000 to 2002, the Marsico Growth Fund tumbled at an annual rate of 17.7 percent.