Making sense of how and why markets behave as they do has never been simple. For decades, even centuries, economists have searched for a model to resolve this age-old dilemma. But now, with the Internet changing the way we live, work and play, there's one portfolio manager who has come up with a unique metrics theory, one that's grounded in our ecosystems.
Robert Loest, portfolio manager of the IPS Millennium Fund, thinks the old ways of evaluating companies, like using price-to-earnings ratios, don't necessarily fit New Economy stocks. That's because he's a biologist first and thinks there's much to be gained from the model that nature provides. "Today, with the connectivity created by the Internet, we are far more like an ecosystem than we are like a Newtonian machine," he says.
His new way of thinking has paid off. In 1999, the IPS Millennium Fund was one of the year's triple-digit performers. Sometimes classified as a growth and income fund, other times as a mid-cap fund, it ended 1999 with a total return up almost 119 percent.
During the first quarter of 2000, the fund was ahead approximately 15 percent. Then, like the market-especially Internet stocks-its performance hit the skids. Midway through the year, the fund's total return was up about 1 percent. But that doesn't mean Loest's biology-based investment theories are all washed up. "You can't defy gravity," he says. "If the market goes down, I'm going to go down, too."
At mid-year, there were about 100 stocks in the fund. Roughly half of them were computer-related stocks, such as software companies (18 percent) and computer networking firms (14 percent). To make the fund less volatile, Loest invests a portion of its assets in dividend-paying companies. As of July 31, the utilities sector accounted for more than 30 percent of the fund's assets.
To be a savvy investor in the IPS Millennium Fund, make sure you're also a fan of the manager's investment philosophy. "Investors need to know that we use a different model that does not involve earnings and price-to-earnings and things like that," explains Loest. Instead, he looks at the "connectivity" of a company-how interrelated a New Economy company is to others within the Internet system.
"We're transitioning from an industrial economy to an information-based economy," says Loest. "Picking stocks from the old industrial economy is akin to, say, in 1910, continuing to buy mining and canal and buggy stocks instead of AT&T, Ford and General Electric."
In the end, along with having new thoughts about how to evaluate companies, Loest still has an old-fashioned value bent. But this is not a fund for widows and orphans. Expect its performance to be volatile and ever-changing-a lot like nature.
Fund name: IPS Millennium Fund (IPSMX) Managed by: IPS Advisory Inc.
Portfolio manager: Robert Loest
Total assets: $393.4 million
Top holdings: Calphine, Duke Energy, JDS Uniphase, PECO Energy and Sandisk
Average annual return: 36.8% (since its inception in January 1995)
Maximum load: None
Total expense ratio: 1.09% (fund has no 12b-1 fee)
Minimum initial investment: $2,500
Management fee: 1.09%
Phone: (800) 249-6927
Web site: www.ipsfunds.com
Figures are as of July 31, 2000.
Dian Vujovich is a nationally syndicated mutual fund columnist and author of 101 Mutual Fund FAQs(Chandler House Press). For free educational mutual fund information, visit her Web site, www.diansfundfreebies.com.
- IPS Advisory Inc., (800) 249-6927, www.ipsfunds.com.