Five-year: 10.53%
Impediments to investing success: "Rate hikes, the Middle East and terrorist activity at home have unfortunately become facts of life."
Expert: Sheldon Lieberman, Portfolio Manager and Principal
Hotchkiss and Wiley Large Cap Value Fund, Los Angeles
Years in profession: 15 years
Assets under management: $74 million
Claim to fame: While it's getting more and more difficult to find deep value, Lieberman has managed nicely to unearth stocks that had his fund beating the S&P 500 thrice over at the October 31, 2003 mark. One reason: This fund takes dividends seriously.
Economic outlook: "We don't really spend a lot of time looking at short-term economic events, but consumer confidence has shown large gains, as has GDP, which showed the fastest growth in 19 years."
Interest rate outlook: "My guess is that to the extent we see the recovery continue to unfold, we'll see some upward pressure on interest rates."
Stock market outlook: "We're still finding pockets of undervaluation. To me the market looks pretty fairly valued, but that assumes we get earnings growth of 15% to 16% next year. Longer term I think we go back to a more historical norm of 3% to 4% equity premium over long-term interest rates."
Recommended asset allocation: The fund, which is 100% stock and keeps cash below 4%, counts financial services, consumer services, business services and technology as its top investments.
Favorite investments: EDS, Sears, J.C. Penney, Metropolitan Life, Computer Associates International.
Performance as of October 31, 2003:
YTD: 31.9%
One-year: 31.1%
Three-year: N/A
Five-year: N/A
Impediments to investing success: "There are fewer value opportunities than there were three years ago, so we're taking bigger positions."
Expert: Steven Romick, President and Portfolio Manager
First Pacific Advisors Crescent Fund, Los Angeles
Years in profession: 12 years
Assets under management: $350 million
Claim to fame: FPA's Crescent Fund is the No. 1-performing hybrid, moderate-allocation fund over the past decade (its ten-year average annual return is 12.9%). It only had one down year relative to the S&P 500's three declining years. Also notable, the fund performs quite differently than peers, thanks to its focus on small-cap value, junk bonds and convertibles.
Economic outlook: "I think we'll see GDP growth in the 5% to 6% range over the next five to ten years. I don't think the next decade will be better than last decade."
Interest rate outlook: "We don't really look at rates."
Stock market outlook: "We're looking at returns in the 3% to 5% range over the next decade. I hope to do better than that."
Recommended asset allocation: "I have a go-anywhere fund. My allocation is 50% long, 10% short, 20% high-yield bonds and 20% cash (which holds the collateral for the fund's short positions, so the cash position is really 30%).
Favorite investments: Patterson-UTI Energy, Michaels Stores, National Oilwell, Celanese AG and US Treasury Bonds.
Performance as of October 31, 2003:
YTD: 21.7%