Investment Consult

Where I've put my own money

Our columnist reveals the contents of his personal portfolio, which includes about a dozen mutual funds.

By Lewis J. Altfest, PhD, CFA, CFP

Clients often ask me how closely I follow my investment recommendations. The answer is, very closely—but only when they suit my own financial goals and tolerance for risk. What some clients feel comfortable with might be too chancy for me. On the other hand, some clients won't purchase a mutual fund that lacks a track record, but I'll occasionally do so based on the reputation of the manager or the fund family.

Though all of my investments might not be right for you, I thought you'd be interested in a peek at my portfolio. My business, house, and real estate investments aside, my holdings consist almost entirely of equities. Although I consider myself financially conservative, I haven't much in money-market or bond funds. I try to reduce my risk through diversification, by investing across a broad range of stock categories, with a little money in areas that aren't tied directly to the stock market. For instance, I have a stake in an oil-and-gas limited partnership.

Mutual funds make up almost all of the securities portion of my portfolio, because I think funds offer an excellent way to spread risk. All of the funds I own are actively managed, because I'm not content to do only as well as the market, as proponents of index funds are.

Over the past few years, I've moved away from large-cap stocks to mid- and small-caps. I feel that smaller stocks are valued more fairly these days than big growth stocks and have greater potential over the next three years. Specifically, I've placed more money in small- and mid-sized foreign stocks, through value-oriented mutual funds, because I believe these companies will do better over the next few years than their domestic counterparts. I hold shares in a fund that invests almost exclusively in Japan (Matthews Japan Fund—Class I), and another that's focused on India (Morgan Stanley Dean Witter India Investment Fund, a closed-end vehicle that trades on the New York Stock Exchange). The India fund has a strong position in technology and is trading at a huge discount to its net asset value.

Why do I focus on a couple of promising countries, rather than buy only funds that invest in several foreign countries or an entire region? For the same reason that one might buy, say, a fund that owns only banks or health care companies: In exchange for greater volatility and the risk of bigger losses, I get the potential to enjoy larger gains than I would by owning a more diversified fund. For example, in 1999 Matthews Japan returned 107 percent. This year, it's down 12.4 percent.*

If you read this column regularly, you know that I believe strongly in the value style of investing—buying stocks that are trading at a discount to their underlying worth. Yes, I've been disappointed in value's performance relative to growth over the past three years or so. However, value stocks have done better than growth stocks this year, and I expect them to bounce back even more strongly in 2001. Most of the funds I own are value-oriented. They include Royce Opportunity, Longleaf Partners, and Tweedy, Browne Global Value.

When do I sell a fund? That depends. In the case of the Japan and India funds, I might unload one or both if the political climate in either country becomes unfavorable to investors. But I don't put any of my mutual funds on a timetable. I evaluate each one monthly and decide from there whether it's worth keeping. Some I keep for as little as six months; one, Lord Abbett Affiliated Fund, I've held for more than 10 years. (As a partner at Lord Abbett, I was fortunate to be able to purchase that fund on a no-load basis. For others, it charges a 5.75 percent front-end load.)

Occasionally I opt for individual stocks, when I believe I've found a well-run company whose share price has gotten smashed. One of the most promising in my portfolio is Waste Management, which until recently hadn't been run well at all. However, new CEO Maury Myers' efforts to turn the company around and win back investor confidence seem to be working. Moreover, Waste Management is this country's largest waste hauler and has the infrastructure to make a turnaround possible. In fact, one of the company's biggest shareholders is Longleaf Partners, which means I own the stock both individually and through one of my value-fund holdings. That says a lot for what I think of its prospects.

Another undervalued, unloved stock that I own is Oxford Health Plans, a name that for better or worse is very familiar to physicians in the New York City area. Although people were quick to blame Oxford's management for the company's troubles, I feel industry-related woes—higher overall health care costs, for instance—compounded them. Today, Oxford's financial health is improving, and, according to the National Committee for Quality Assurance, it now meets or exceeds NCQA standards for service and clinical quality. And with a price-earnings ratio of 7.2, Oxford is worth more than its current price of 34 a share.

*All performance figures in this column are through Oct. 31.

The author, a fee-only financial planner, is president of L.J. Altfest & Co.(www.altfest.com ), a financial and investment advisory firm in New York City. This column appears every other issue. If you have a comment, or a topic you'd like to see covered here, please submit it to Investment Consult, Medical Economics magazine, 5 Paragon Drive, Montvale, NJ 07645-1742. You may also send a fax to 201-722-2688 or e-mail to meinvestment@medec.com.

 

Lewis Altfest. Investment Consult: Where I've put my own money. Medical Economics 2000;24:24.