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JANUS’S SCHOELZEL, PBHG’S MCCALL IN ELITE CLASS: FEW MANAGERS ARE PASSING THE MARKET’S STRESS TEST

Whoever is training mutual fund managers at Janus Capital Corp. ought to get a raise. The fingerprints of…

Whoever is training mutual fund managers at Janus Capital Corp. ought to get a raise.

The fingerprints of the mutual fund firm, which is based in Denver, are apparent on a list of 50 stock portfolios that fared well this year despite the recent bloodbath on Wall Street.

Only 11 diversified U.S. stock funds made the list. Among the other top performers were Mark Sapir of Profund Advisors LLC and James D. McCall of Pilgrim Baxter & Associates Ltd.

Scott Schoelzel manages three portfolios of the top 50, compiled for InvestmentNews by Lipper Analytical Services Inc. in New York. They are the $10.4 billion-asset Janus Twenty, an aggressive growth fund that racked up the 10th best return of 26.33% through Sept. 3; Idex Growth, which he manages as a subadviser for Dutch insurer Aegon Nederland NV; and the Shelton, Conn., annuity firm American Skandia’s Advisor Funds’ Janus Capital Growth fund.

largely in large-caps

Mr. Schoelzel’s predecessor at the Janus Twenty and the American Skandia fund, Thomas Marsico, also made the list with three funds. He quit Janus a year ago to set up his own shop, Marsico Capital Management in Denver and was not available for comment. He was out of town for personal reasons, a spokeswoman says.

“Oddly enough, I didn’t do a whole lot to the fund,” says a modest Mr. Schoelzel.

Like it or not, the mutual funds that were most heavily weighted in large company stocks with lofty price-to-earnings ratios fared best. Such Nifty 50-type stocks, particularly technology companies like Microsoft Corp. and Dell Computer Corp., remain the fastest-growing companies in the economy, despite criticism that they have become highly overvalued. What’s more, investors flock to larger companies in times of market turmoil.

These managers were also helped by what they didn’t own. They had little to nothing invested in bank and financial services stocks, which were socked when they announced expected losses caused by the financial trouble in Russia, Asia and Latin America.

up in a down market

Financial advisers often scrutinize a fund’s performance during down markets to determine its volatility and August and early September have proven quite the test. While everyone got creamed on Aug. 31, a few managers were able to post generous returns for the year-to-date and three years through Sept. 3.

The three-year return for Janus Twenty, for instance, was 29.82%, putting it fourth on the list. (See chart.)

Joining Janus Twenty in the top five over three years are: Weitz Hickory (1) and Sequoia Fund (5), both of which are closed to new investors. Rounding out the top five are Legg Mason Value Trust and Caldwell & Orkin Market Opportunity fund.

Mr. Sapir, chairman of Profund Advisors LLC, in Bethesda, Md., manages the Profunds Ultra OTC fund, which topped the list for domestic stock funds in the year to date.

Mr. Sapir’s $54 million-asset fund attempts to double the return of the Nasdaq 100 Index. “In spite of recent turmoil in the market, the Nasdaq 100 Index is up for the year and we’ve been able to highly correlate our fund with our benchmark,” he says.

Some of his best-performing holdings overlap with Mr. Schoelzel’s picks: Microsoft, Intel Corp. and Cisco Systems. One reason the fund was able to perform well is that it’s small (it opened last November ) and nimble, Mr. Sapir says.

Another manager investing in the same stocks based on quantitative analysis, James D. McCall, oversees the PBHG Large Cap 20 fund, a two year-old fund that racked up a 17.67% year-to-date return. Unlike his Wayne, Pa.-based firm’s small company momentum funds, which have been hammered, Mr. McCall’s charges have ridden the same wave as those of Mr. Schoelzel and Mr. Sapir. Stocks like Dell Computer Corp. and Home Depot Inc. propped up his portfolio.

“The simple explanation is that the fund is concentrated in the kind of stocks that suffered least,” he says.

Mr. McCall has been the shining light at PBHG, which has struggled in recent months. He says of his office mates: “Everybody gets nervous a little, depressed a little. Nobody’s jumping out windows. We only have three floors.”

Everyone reacts differently. Mr. Schoelzel, who often leaves the office early to pick up his children from school, says his secret during the recent market swoons was to avoid being “glued to the screen.” During one part of Aug. 31, as the Dow Jones Industrial Average plummeted a record 512.61 points, he turned off his computer and read the business sections of various newspapers and magazines.

Mr. Schoelzel says he tries to determine how the onslaught of financial scandals around the world, and the Clinton-Lewinsky mess at home, will affect particular company’s sales, not what they do to the broad market.

“I spend five minutes a day thinking about that,” he says. Indeed, one of his favorite firms is America Online, which, he argues, thrives on the Clinton scandal and worried investors in chat rooms that are “standing room only.”

One fund company that did not make the Lipper list, but is worth noting because it captured positive returns for its stock portfolios, is New York-based TIAA-Cref, an institutional behemoth that launched its first mutual funds a year ago. Its Growth Equity fund was up 3.1%, its Growth & Income fund was up 4.6% and its international equity fund was up 3.5% through Sept. 3.

Scott Evans, head of TIAA-Cref’s stock investments, is wary of tooting his own horn, saying that the firm’s portfolios, while up year-to-date, were still substantially down from June’s levels. “We’ve been feeling pain like everyone else,” he says. “I wouldn’t maintain we’ve outperformed during the turmoil. We had a pretty big lead through the front part of the year.”

What may have kept the funds above water, says Mr. Evans, is that they are cheaper than most, with annual expenses of 0.49%. The portfolios blend active and passive strategies: 55% and 65% of their $610 million is active; the rest index ed.

“The riskiness (of the funds) is based on tracking their benchmarks,” he says. The risk is “low to modest and we intend to keep it that way.”

What market correction?

Top U.S. equity funds, as of Sept. 3

Year-to-date returns

Profunds: Ultra OTC — Investor 35.41%

Profunds: Ultra OTC — Services 34.93%

Berger Select Fund 28.30%

Janus Twenty 26.33%

Schroder Microcap — Investor 26.21%

Three-year, average annual returns

Weitz: Hickory* 33.30%

Legg Mason Value Trust 31.09%