The Rewards Of Risk
Not all fund investors are looking for the same thing. Some don't like to take chances with their investment dollars. Others won't buy a load fund or one with high fees. And there are those who have a list of must-haves that outweigh a fund's performance.
But what do people who invest in funds for the sake of seeing how much money they might make buy? Typically, aggressively managed funds like the Spectra Fund.
The Spectra Fund first made its presence known in the 1970s. It's kind of a wolf in sheep's clothing. Or vice versa, depending on how you look at it. On its gentle side, the Spectra is a no-load fund with no 12b-1 fees that attracts cost-conscious investors. However, it carries a hefty expense ratio that in February 1998 was at 1.96 percent.
Managed aggressively by David Alger and David Hyun, this fund takes no prisoners. If the portfolio gets turned over a time or two during the year, big deal. These guys aren't long-term investors. Nor are they concerned about using a tax-managed investment strategy. Returns are what count.
"We look for very fast-growing companies," says Alger, president and chief investment officer of Fred Alger Management Inc. "If it's a large-cap stock, we like to see earnings growth of about 15 percent each year. A mid-cap stock, would have to be growing in the mid-20 percent range. And a small-cap stock would probably have to be growing north of 30 percent per year."
Two companies among the fund's 65 portfolio holdings that illustrate this point are AOL and Amazon.com. AOL found its way into the fund's portfolio due to its fast earnings growth. Amazon.com's appeal is totally different.
"I don't like companies without [fast growth in] earnings," says Alger. "But occasionally we make exceptions to that rule if we see that the company is exciting and its future is bright. That's the case with Amazon.com."
For the past 20 years, the Spectra Fund's total average annual return has been just shy of 22 percent. However, 18 years of that performance history occurred while the fund was closed-end. (Closed-end funds issue a specific number of shares, so their per-share price is based on supply and demand. Open-end funds issue and redeem shares as needed; their per-share price is based on the net asset value of all the securities in their portfolio.) The Spectra Fund was restructured as an open-end fund in 1996, but its total return hasn't suffered: At year-end 1996, the fund was up 19.48 percent; at year-end 1997, up 24.69; and through December 31, 1998, ahead 47.94 percent.
The Spectra Fund can also use leverage and engage in options and futures transactions. That makes it a fund for investors who favor wolves to sheep.
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, http://www.diansfundfreebies.com
At a Glance
Fund name: Spectra Fund (SPECX)
Managed by: Fred Alger Management Inc.
Portfolio managers: David Alger and David Hyun
Holdings include: Amazon.com, AOL, Dell Computer Corp., Intel Corp. and Pfizer Inc.
Total assets: $312.5 million
Average annual return: 21.98% (since its inception in July 1969)
Load: None (and no 12b-1 fees)
Total expense ratio: 1.96%
Minimum initial investment: $1,000 for standard accounts; $250 for retirement accounts; and $100 per month for automatic investment accounts.
Phone: (800) 711-6141
Figures are as of February 3, 1999.