Q. Please give me your opinion of Brandywine Fund, which is in my retirement account.
K.R., via the Internet
A. You know how some investors just don’t have it in their hearts to let stocks go? Well, that’s not the case with this high-energy fund.
It goes boldly wherever it sees growth opportunities and often has 200 percent portfolio turnover in a given year.
That strategy has done splendidly long term, though recent results have been so-so. Because it trades quickly, it generates a lot of short-term capital gains and fits best into a tax-sheltered account.
The $4.2 billion Brandywine Fund (BRWIX) gained 7.7 percent over the past 12 months through Friday to rank just outside the top third of mid-cap growth funds. Its three-year annualized return of 12 percent puts it in the top 26 percent of its peers.
“The fund is unique in that it looks for earnings momentum, but unlike a lot of momentum strategies it is also conscious of valuations,” said Karen Dolan, analyst with Morningstar Inc. in Chicago.
Portfolio manager William D’Alonzo has been in charge since late 1985. He and fund family founder Foster Friess are heavily invested in Brandywine funds. D’Alonzo also runs the large-cap Brandywine Blue Fund and the mid-cap Brandywine Advisors Fund. Because the fund invests on company-by-company considerations, its portfolio can become heavily weighted in a few sectors.
Health care, industrial materials and technology hardware are its largest concentrations. Top holdings recently were Hewlett-Packard, Fisher Scientific International, Kohl’s, Precision Castparts, Weatherford International, TJX, Comcast, Baker Hughes, Best Buy and Harris.
“It ignores sectors altogether and, for example, currently has almost no financials or telecoms,” Dolan said.
This “no-load” (no sales charge) fund requires a $10,000 minimum initial investment and has an annual expense ratio of 1.08 percent.
Q. What do they mean by the expensing of options, and why are companies unhappy about doing this? Is it a problem at some companies more than others?
V.J., via the Internet
A. For years, companies used stock options to compensate employees and encourage them to stay on. Financial regulatory bodies and most U.S. businesses had considered such options non-operating expenses, not to be included in profit-and-loss reporting.
Because they weren’t salary or bonuses on their balance sheets, many firms granted options worth tens of millions of dollars. Technology firms were especially aggressive, and new rules have crimped profits.
“After exhaustive deliberation and debate, the Financial Accounting Standards Board and Securities and Exchange Commission determined stock options are indeed compensation and should be treated like every other form of compensation as operating expenses,” said Scott Kessler, head of technology equity research at Standard & Poor’s Corp.
With this accounting standard in effect for 2006 results, comparisons with 2005 have been difficult for some firms, especially those in Silicon Valley, the epicenter of stock options.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney@tribune.com.
