William D'Alonzo's Brandywine Blue Fund rose twice as much as the Standard & Poor's 500 Index in the past year by choosing just 30 stocks...
William D’Alonzo’s Brandywine Blue Fund rose twice as much as the Standard & Poor’s 500 Index in the past year by choosing just 30 stocks and trying to sell them before they peak.
D’Alonzo recently shed Chicago Mercantile Exchange Holdings, the fund’s biggest investment, after the stock climbed 29 percent in three months.
He has boosted his stake in Nabors Industries, the world’s largest oil and natural-gas driller, by 50 percent and purchased shares of Intel, the largest semiconductor maker, and retailer Bed Bath & Beyond. “We buy full positions and we sell full positions,” D’Alonzo said from his offices in Greenville, Del.
The Brandywine Blue Fund climbed nearly 29 percent in the past 12 months, as of Aug. 24, ranking 15th of 225 competing stock funds tracked by Bloomberg. The S&P 500 gained slightly more than 12 percent in the same period.
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The top-performing “multi-cap growth” fund was Hennessy Advisors’ Hennessy Focus 30 Fund, up 46 percent.
D’Alonzo overhauled the fund more than once in the past 12 months, and the average annual turnover for the past three years was 216 percent. That’s more than double the industry average, according to researchers at Morningstar.
D’Alonzo also owns far fewer stocks than competing equity-fund managers, who hold 145 on average.
The Brandywine Blue Fund invests in companies with market values of more than $6 billion that D’Alonzo expects to report quarterly earnings increases of at least 20 percent.
Eighty-five percent of the Friess Associates’ assets are in shares of companies that met or beat analysts’ estimates in the most recent quarter, he said.
Friess Associates, a unit of Beverly, Mass.-based Affiliated Managers Group, started the Brandywine Blue Fund in 1991 after assets of the firm’s first fund, the Brandywine Fund, doubled in six years. Brandywine Blue requires a minimum initial investment of $10,000.
The company’s 70 employees are the largest shareholders of the three Brandywine funds.
In addition to earnings estimates, D’Alonzo evaluates what he calls a company’s “sizzle factor.”
That may include the introduction of a product or a change in management strategy.
He devoted 5.3 percent of the fund’s assets to the Chicago Mercantile Exchange in June, after the world’s biggest futures market said daily trading rose 47 percent to a record in April, boosted by speculation about how much higher the Federal Reserve will increase its target for overnight lending between banks.
“It had a pretty nice move, but we had some competing ideas with possibly more upside,” D’Alonzo said.
Brandywine Blue has about 17 percent of its assets in energy companies, almost triple the average for large-cap growth funds, said Karen Papalois, an analyst at Morningstar.
“They make some pretty bold moves,” she said. “The risk is they could get one of these calls wrong and it will hurt.”
“We don’t have an arrogant attitude about selling,” D’Alonzo said. “If we make a mistake, we move on.”
While buying and selling stocks raise shareholder costs, D’Alonzo said higher returns compensate for the higher expenses.
The fund’s expense ratio is 1.12 percent, less than the 1.5 percent average for rival funds, data compiled by Bloomberg show.
“We try not to be penny-wise and pound-foolish,” he said.