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A Go-Anywhere Fund That Does

Having the ability to invest a fund's assets into any sized company that you'd like can be a big plus for a portfolio manager---even though it may wreak havoc on investors who are style-box driven and aren't into changes. But there has always been more to portfolio fund management than fitting into a box, as this fund manager has shown throughout his tenure.

Ross Margolies has 19 years of money management experience under his belt. The last seven spent as portfolio manager of the Salomon Brothers Capital Fund, (800-451-2010). During each of those years, the fund has shown plus-side returns.

Ask him whether there is anything that's misunderstood about the Salomon Brothers Capital Fund, (SCCAX), and he will mention style boxes. "We bounce around from style box to style box and I make every effort I can to explain that to people, "says Margolies. "I tell people not to buy this fund if they want to buy a mid-cap value fund, but to buy this fund because they think the team of people who work on it are going to pick the best stocks for you."

Investing wherever he find's the best opportunities has paid off, too.Last year, for instance, the Capital Fund ended 2001 up 2 percent, beating the performance of the average multi-cap value fund. Funds in that group were down on average 1.76 percent, according to Lipper. Over the past five years, ending Dec.31, 2001, the fund's average annual total return was 18.69 percent. Year-to-date, through Feb. 6, the fund's performance is down 4.54 percent.

Currently there are about 60-65 stocks in the fund's portfolio with the bulk of the assets invested in consumer staple stocks, (16 percent); health care issues, (15 percent); communication companies, (10 percent); consumer cyclicals,(9 percent); and technology ( 8 percent).

Here's more from Margolies about the Salomon Brothers Capital Fund:

Q: What's the investment strategy you use in this fund?

Margolies: The strategy is a go-anywhere strategy in which we look for the best risk/reward ratios we can find.

What makes us different from most funds is, most funds try to screen the universe down to a small group of stocks that fit a certain style box. What that does is create a certain type of concentration and there are two issues there. The first is that, within the portfolio, all of your stocks will have similar characteristics. So, when they are in favor, they all tend to be in favor, and when they are out of favor, they all tend to all be out of favor, and you end up with a more volatile portfolio.

The second thing is that it creates a lower level of diversification for your investors. From an investor's point of view, that means that they have to buy several portfolios to get real diversification.

Q: Tell me about a couple of your holdings.

Margolies: My biggest holding is Safeway, the grocery store chain. It's growing in the mid-teen's; trades at a low-teen ratio; and should earn 3.20 this year. So it's cheap,it's growing, it's got a great franchise and the company has been buying back there stock as fast as they can get it.

Q: You like all of those things?

Margolies: I love all of those things.

AIG is another company in the fund. They are a leading insurance company that's currently depressed--like other financial services stocks--- and is trading at its lowest multiple in five years.

Q: What about a stock that didn't work out as you'd hoped.

Margolies: An example there would be NTL Incorporated. What I've done there is, over a period of time, swap my position from common stocks into senior debt securities. So I'm taking a loss on the common stock and I'm moving into the debt securities. The idea being to take a bad situation and then turn it into something good.

Q: Any bonds in the portfolio?

Margolies. Roughly five percent, and they're mostly distressed debt.

Q: In a nutshell, what do you think the key to making money is?

Margolies: The key to making money is to not lose a lot of money. I know that sounds painfully simple and silly but it's very important.


Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.

To read more articles, please visit the column archive.

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