Banking

Hot mutual fund targets some surprising stocks.

The $2.1 billion Neuberger Berman Guardian Fund (NGUAX) earned its perch among the best mutual funds by casting a wide net for leading stocks.




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“At a high level, what we’re trying to do day in, day out is deliver leading stocks that are fundamentally driven, with a large-cap bias,” said co-manager Marc Regenbaum.

Flexibility is a key, he says. To make sure the portfolio holds a variety of stocks that are likely to prosper under different market conditions, the fund invests in three buckets of growth equities.

Best Mutual Funds: Three Types Of Growth Stocks

How do managers of one of the best mutual funds diversify their holdings? Sixty percent to 80% of the portfolio tends to consist of stocks that Regenbaum and senior manager Charles Kantor expect will mainly deliver price appreciation. Those are their core holdings, Regenbaum says.

Another 20% to 30% are equity income stocks. They’re expected to offer income along with price gains.

The final portion of up to 20% consists of stocks the fund managers label opportunistic. They see them as generally sound but whose share price is temporarily beaten down. The managers can see the catalyst that they think will spark that stock’s rebound.

Currently, their core holdings are at the high end of their allocation range. Equity income stocks are in the low to middle area of their range. Opportunistic stocks are in the mid single digits.

In addition, the managers tend to hold stocks two to five years. “We are buy-to-own investors, not day traders,” Regenbaum said.

Future Strengths For One Of The Best Mutual Funds

Google-parent Alphabet (GOOGL) is one of the fund’s core holdings. Also, it contributes to the fund’s fight to remain one of the best mutual funds.

Advertising on Google is a huge source of revenue for Alphabet. Regenbaum says he and Kantor do not mind that autonomous driving technology company Waymo and Google Cloud are posting operating losses. “We love providing capital to companies that have demonstrated innovation and ability to cultivate new, differentiated users and ultimately providing new workloads into their ecosystem,” Regenbaum said.

And Regenbaum and Kantor think Google’s ability to generate growing amounts of advertising revenue through its search engine is underappreciated.

He added, “YouTube and Google Cloud will contribute to revenue growth in the next two years. And they are becoming incrementally more focused on managing expenses.”

Microsoft’s Future Prospects

Microsoft‘s (MSFT) multiple business lines are like pistons in a powerful engine. They helped Guardian become one of the best mutual funds.

Its Azure is a leader in cloud infrastructure. Its server related tools like the MySQL database are leaders in their space. And it is a leader in enterprise software through its Office, Dynamics and Teams applications.

Regenbaum sees big tailwinds for several Microsoft products. “IT spending is set to double as a percentage of GDP, from 5% to 10%, over the next decade,” he said. “And Azure is expected to grow revenues in excess of 30% for the next 12 to 18 months.”

Digitization Of Trading

Tradeweb Markets (TW) is an electronic over-the-counter marketplace for trading fixed income products, exchange traded funds (ETFs) and derivatives.

Going into Thursday, CAN-SLIM investors saw that Tradeweb was 5% above its 89.89 pivot point. That put it on the verge of being extended outside its buy zone.

If the stock goes beyond its buy zone, you may have to wait for it to form a new base.

Regenbaum sees Tradeweb as a digital trading pure play. One virtue: as volatility in its markets increases, trading volume rises. “And they get tremendous margin expansion from greater volume pass-through,” Regenbaum said. “We expect them to continue to make ongoing share gains on the credit side, be a beneficiary of rate volatility, and get operating efficiency that’s inherent in the business model.”

In Guardian Fund’s Three Buckets

Alphabet, Microsoft and Tradeweb are core holdings in Guardian Fund’s main basket of stocks that are expected to deliver share-price growth.

In the fund’s equity income basket, which the managers sometimes refer to as their total return candidates, are fast-food giant McDonald’s (MCD), beverage company Keurig Dr Pepper (KDP) and NextEra Energy (NEE).

Regenbaum says NextEra is a play on the move to renewable energy sources. “The stock is a key element in the renewables theme,” he said. “Climate change policy is front and center for the Biden administration. NextEra is one of our larger positions. It’s a Florida rate-regulated electric utility. It’s a leading developer of wind and solar products.”

Ride hailing service Uber Technologies (UBER) and chemicals company Ashland (ASH) are examples of opportunistic bucket names.

By The Numbers: One Of The Best Mutual Funds

Guardian Fund became an IBD Best Mutual Fund Awards winner by topping the S&P 500 in 2020 and in the three, five and 10 years ended Dec. 31.

This year going into Thursday, the fund’s 26.76% return topped the S&P 500’s 25.23%. The fund’s large-cap growth rivals tracked by Morningstar Direct were up 21.49% on average.

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about personal finance and active mutual fund managers who outperform the market by picking top-performing growth stocks.

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