47 what to invest money in 2016 0 0 13 6. Fear of failure drives many mutual fund managers to spread their bets widely. The stewards of the funds on the following pages are different.
They invest in 50 companies or fewer, following their best ideas with conviction—and to great success. Each fund’s five-year return has beaten those of more than half of the funds investing in similar stocks. For the three funds that are at least a decade old, the same is true of their 10-year returns. Follow the managers’ advice and you may prosper too. Gregory Halter, who started in 2014, see themselves as long-term partners of the companies in which they invest. The strategy: The trio stick to stocks of large firms selling at a discount to the value of the underlying businesses. They also screen for earnings growth rates in the high single digits or better, ample cash flow, and top brass who they believe use resources wisely.
One area the Homestead team likes is pharmaceuticals, which make up five of the fund’s 49 current holdings. Big drug companies, says Carpenter, are rolling out new medicines but are not as expensive as their biotech peers. The managers’ instincts have often been correct. Why Ashton, Carpenter, and Halter like it: In recent years big pharmaceutical firms have been hurt by patent expirations of popular prescription drugs.
But Carpenter says Pfizer is replenishing its portfolio with smart acquisitions, like its intended merger with global pharma company Allergan. Pfizer could face political fallout for its plans to move to Ireland for a lower tax rate. Why Ashton, Carpenter, and Halter like it: Bank of America has been digging itself out from under the housing market mess—and making progress. 16 billion for litigation expenses related to the financial crisis.
1 billion to cover such costs. Meanwhile, demand for its products is growing. Honeywell, which makes everything from home-security systems to airline parts. CEO David Cote says he wants Honeywell to be the Apple of industrials, and in 2014 the company launched an initiative to make products, like the Lyric smart thermostat, attractive and easy to use. The managers: To make their selections, Bill Nygren and David Herro look for stocks selling at a steep discount to the price they believe a buyer expecting a reasonable return would pay for the company. Free to invest in thousands of companies worldwide, the fund has remarkably few holdings at any given time: about 20 stocks. Ticker: AIG AMERICAN INTERNATIONAL GROUP INC.