If you're looking for a growth fund whose portfolio manager is a bargain hunter, then you'd probably be interested in a fund that offers growth and value. The Strong Schafer Value Fund provides both.
The fund's portfolio manager, David K. Schafer, has been stock shopping for decades. As an analyst in the early 1970s, he followed growth stocks. But after the market hit the skids in 1973 and '74, and growth stock prices fell dramatically during a bear market in which many stocks lost 50 percent or more of their value, Schafer changed his strategy.
"It sort of soured me on growth stock and high P/E stuff," says the 58-year-old stock market veteran, who has managed the fund since its inception in 1985. As a result, Schafer moved from growth to value investing.
Today, the fund that bears his name and is marketed by the Strong family of funds has an investment philosophy that's simple: Invest in stocks with P/E ratios that are less than the S&P 500 Index's P/E ratio and have earnings growth estimates that are greater than the S&P's over the next two to three years.
Using those guidelines, Schafer prefers mid- and large-cap stocks to small-cap ones--and the bigger the better. "All things being equal, which they never are," he says, "I'll take the big stock rather than the small stock just for liquidity reasons."
At press time, there were about 60 stocks--all equally weighted--in the fund's portfolio, including Ford Motor Co. and Storage Technology. That's more than the fund usually holds. One reason for the increase is that the fund has taken in a lot of money lately. In 1996, the fund had assets of $1.8 million; today, it has more than 10 times that amount.
"We've gotten more money and [have become] more focused," says Schafer. "And we don't want to just buy big stocks; we don't want to buy mid-cap stocks. We want to buy cheap stocks. Right now, they happen to be mainly in the mid-cap arena."
Staying focused and sticking with a disciplined investment approach are more important to this fund manager than market valuations. Because no one has been able to effectively time the market, being fully invested is also important to Schafer. As the total return for the Strong Schafer fund shows, a disciplined investment approach can garner solid results. From its inception through mid-March, the fund's average annual total return was 17.33 percent.
Schafer recognizes his management strengths but realizes he's not the only fund manager with an investment style that works. "I think that if you find a good manager, no matter what philosophy they use, there are a lot more ways to skin the cat than a lot of people think," he says.
But for the time being, he'll stick with his.
Dian Vujovich is a nationally syndicated mutual fund columnist and author of Straight Talk About Mutual Funds (McGraw- Hill), Straight Talk About Investing for Your Retirement (McGraw-Hill), and 10-Minute Guide to Stocks (Macmillan).
At A Glance
Fund name: Strong Schafer Value Fund
Portfolio manager: David K. Schafer
Managed by: Schafer Capital Management Inc.
Total assets: $1.9 billion
Average annual return: 17.33%
Management fee: 1%
Minimum initial investment: $2,500 (IRAs and custodian accounts: $250; education IRAs: $500)
Phone: (800) 368-1030
(Figures are as of April 14, 1998.)