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A Step Ahead

Aggressive, fast-moving fund targets growth companies.

A big part of staying ahead of the competition is sweating the details. Inspiration and talent help, but to deliver results, you've got to work hard.

When it comes to investments, it's hard to find a better example of these precepts than Greenville, Delaware-based Brandywine Fund. By doing intensive research and keeping its portfolio flexible enough to act quickly as market conditions change, the fund has consistently chalked up higher returns than most rivals since it started in December 1985.

Brandywine invests based on research done by six separate management teams, with lead manager Foster Friess overseeing the fund's portfolio. Each team follows a constant strategy, seeking out companies with robust historical earnings and strong growth prospects.

Specifically, Brandywine targets companies with annual earnings-growth rates of at least 20 percent to
30 percent and the potential to do even better. Companies must also have high sales growth and clean balance sheets.

To make sure companies will be able to sustain their growth, Friess and his associates conduct an intensive series of company visits. They not only meet with the companies' managers but also with suppliers, customers and competitors to make sure they're getting the full story on a company's strengths and weaknesses.

Because the market's fastest-growing companies tend to be found in the same segments of the economy, the portfolio tends to be concentrated in certain sectors. As of September 1996, for example, about 40 percent of the fund's assets were invested in computer hardware, software and other technology-related issues.

If a company doesn't live up to expectations, management is quick to move on. Last year, for example, the fund sold shares in Sears Roebuck and Gap Inc. to make room for more technology stocks, including Intel Corp., Cisco Systems Inc., Computer Associates and Compaq Computer Corp. All in all, the fund's fast-paced style has left it with a turnover rate roughly twice that of the typical growth-style fund.

This aggressive style has worked remarkably well. Investors who put $10,000 in the fund 10 years ago would have seen that grow to nearly $58,000--an average increase of more than 19 percent a year. Over time, the fund has been more rewarding than almost any other offering with a similar investment style. Although it couldn't quite keep pace with funds that focused more heavily on smaller stocks in 1991, Brandywine has typically outperformed most rivals. In 1996, for example, it finished the year with a 24.9 percent gain, ranking in the top 10 percent of Morningstar's midcap growth category.

But the fund also has some drawbacks. Its aggressive strategy can make it vulnerable to sudden market corrections. During the stock market's decline in the fourth quarter of 1987, for example, it dropped nearly 30 percent. It also lost close to 19 percent when the market sold off in 1990's third quarter. In addition, the fund requires at least $25,000 to open an account, making it off-limits for some. If you can afford the minimum initial purchase, however, Brandywine is an attractive option. There are no sales charges, and the fund's annual expenses are relatively low.

Overall, this fund is a good choice for investors seeking long-term capital growth. Not surprisingly, it's attracted a lot of attention: Thanks to its strong historical performance, it now manages more than $6 billion in assets.

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This article was originally published in the March 1997 print edition of Entrepreneur with the headline: A Step Ahead.

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