Half the stocks, but twice as good
Alex Motola, manager of the $2.8 billion Thornburg Core Growth Fund, holds half as many stocks as competitors, and his record is twice as good.
Alex Motola, manager of the $2.8 billion Thornburg Core Growth Fund, holds half as many stocks as competitors, and his record is twice as good.
Motola's Thornburg fund has invested in 38 stocks to generate average annual returns of 23 percent during the last five years, the most of 337 rivals tracked by Denver-based Lipper Inc. that buy companies of any size reporting the fastest profit growth.
"We prefer to know the companies very, very well," Motola said from his office at Thornburg Investment Management Inc., of Santa Fe, N.M. "How much are you going to know about your 75th or 200th idea? Every spot in the portfolio is a potentially meaningful contribution to returns."
Google Inc., the most popular Internet search engine, is Motola's biggest holding, followed by Amdocs Ltd., the world's largest supplier of billing and customer-service software, and Chicago Mercantile Exchange Holdings Inc., which became CME Group Inc. this month. Casino operator Las Vegas Sands Corp. comes next, and rental-car company Hertz Global Holdings Inc. is fifth. The stocks made up 23 percent of his holdings at the end of June.
Motola, 37, who has a degree in medieval studies, history and creative writing from the University of California in Santa Barbara, can invest in any company regardless of size or industry. His stock-picking focus means one bad choice can hurt returns. Thornburg Core Growth dropped 20 percent in 2001, mainly because of New York-based Time Warner Inc., which fell more than 33 percent before Motola sold the position.
"His strategy is pretty concentrated," said Katherine Yang, an analyst at Chicago-based research firm Morningstar Inc. "If any of these stocks go under, it will have a big impact on the fund."
The fund has Morningstar's highest five-star rating. Its Sharpe ratio is 1.35, compared with 0.76 for competitors. A higher ratio indicates better risk-adjusted returns.
Motola is outperforming funds that hold hundreds of stocks, as well as managers who invest in a limited number of companies. The Yacktman Focused Fund, managed by Donald Yacktman, rose at an average annual pace of 12 percent during the last five years. Bill Nygren's Oakmark Select climbed 11 percent, and the Sequoia Fund, run by Robert Goldfarb, gained 8 percent. Managers of growth funds hold 99 stocks on average, according to Morningstar.
Google has been Motola's best investment. The stock surged about 412 percent since he bought shares of the Mountain View, Calif., company in August 2004 at the initial public offering.
Shares of Google fell the most in a year July 20 after it posted second-quarter profit that trailed analysts' estimates. Investors are underestimating earnings growth, Motola said. Google made up 4.9 percent of the fund at the end of June.
Shares of Las Vegas Sands more than doubled since Motola started buying them in 2005. They make up about 4.3 percent of total assets.
Las Vegas Sands is spending $11 billion to build the world's biggest casino complex in Macao. Motola has sent colleagues to China about every three months to get reports on the project, which is scheduled to open next month.
The Venetian Macao Resort Hotel will add to Las Vegas Sands' earnings by the end of 2008, Motola said. The company was the first U.S. casino owner to enter the southern Chinese city in 2004, ending gambling magnate Stanley Ho's 40-year monopoly. Macao overtook the Las Vegas Strip as the world's biggest gaming hub last year.
"There's been this long-held belief that as new capacity comes online, it will diminish everyone's returns, but the market keeps expanding to absorb new capacity," Motola said. "Within three hours' flight of Vegas, you hit 250 million people. You draw the same radius around Macao, and you hit a billion."
Gambling revenue in China will rise 27 percent to $9 billion this year, according to estimates by analysts at New York-based Morgan Stanley. The Venetian Macao will anchor a complex of hotels that will have more than one million square feet of gambling space and three million square feet of retail shops.
Las Vegas Sands, led by Sheldon Adelson, plans to keep growing in Asia. The company won the right to build Singapore's first casino, a $3.6 billion project scheduled to open in 2009.
Thornburg Core Growth Fund
Manager: Alex Motola.
Assets: $2.8 billion.
Performance: Up
12 percent in 2007.
Notable holdings: Google Inc., Amdocs Ltd., CME Group Inc., Las Vegas Sands Corp.
Ticker: THCGX.
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