Better Know a Stock Picker

Welcome, Fools, to part 53 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.

Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?

Wasatch Heritage Growth (WAHGX)

Expense ratio

0.95%

Fund size

$234.6 million

1-year return

18.25%

5-year return

N/A

10-year return

N/A

Sources: Wasatch Advisors; returns as of 6/30/2007.

Top 5 stock holdings

Company

% of Assets

Alliance Data Systems (NYSE:ADS)

3.29%

Infosys Technologies (NASDAQ:INFY)

3.21%

WellPoint (NYSE:WLP)

3.14%

Amphenol Corp. (NYSE:APH)

3.03%

America Movil (NYSE:AMX)

2.54%

Sources: Wasatch Advisors, as of 6/30/2007.

Meet Chris Bowen and Ryan Snow
The fightin' team at Wasatch Heritage Growth is led by Chris Bowen and Ryan Snow, who have been on the job since June of 2004 and, in that time, have lost to the benchmark Russell Midcap Growth index, 10.33% to 15.08%.

Why profile this fund, then? Two reasons. First, Champion Funds advisor Shannon Zimmerman has it on his watch list. Second, because the fund is showing dramatic improvement as its investments in unloved growth stocks bear fruit. (Heritage Growth is beating the index in the current quarter.)

Witness Infosys. Heritage Growth already had more than 22,000 shares of the Indian outsourcing giant as of September 2004. The stock is up more than 60% since, easily trouncing both the S&P 500 and the Russell 2000. Eat that, Wall Street.

How they invest
It wasn't till recently that Wasatch, best-known for investing in small- and micro-cap issues, would touch a stock like Infosys, which boasts a fat $26 billion market cap.

But then Bowen, Snow, and their peers realized that the firm was routinely selling excellent businesses they still believed in. As Bowen told The Wall Street Transcript in an interview last year:

Over our history, we've found that there were many times when we owned companies that we still believed were great companies with good long-term prospects, but we were forced to sell them because we were small-cap managers and had to sell on market cap discipline.

Investing discipline is important, but to forsake a great business merely because it crosses an invisible line is ... well, let's just say it's not necessarily a recipe for market-beating returns. Bowen and Snow knew that, and were thus handed the keys to Heritage Growth.

Today, the team invests in ABGCs -- a megamerican acronym for America's Best Growth Companies. That's both patriotic and smart. ABGCs, Wasatch says at its website, are able to grow both revenue and earnings by at least 15% annually. Bowen and Snow buy them when they are trading for a discount to their expected growth prospects. Call it conservative growth investing, if you're into labels like that.

Is this fund for you?
If there's a knock on Heritage Growth, it's performance. So far, it hasn't been consistent. But this is also a very young fund. Heritage Growth should profit as mid-cap and large-cap stocks earn better valuations. Or at least that's how Shannon called it in the December issue of Champion Funds.

I suspect he's right, if only because he's rarely wrong. More than 79% of Shannon's picks for Champion Funds are beating their respective benchmarks. Sound intriguing? Here's how to get a no-strings-attached, 30-day free trial to the service.

And till next time, fund nation, good night.

For more Foolish coverage of growth gurus:

  • Steve Wymer's attention to the top line produces bottom-line results.
  • Bowen and Snow should meet Glenn Fogle, who also dines on mid-caps in the pursuit of tasty returns.
  • Tom Marsico, on the other hand, is betting on blue chips.

Fool contributor Tim Beyers is a regular viewer of The Colbert Report. (Stay the course.) Tim didn't own shares in any of the companies mentioned in this article at the time of publication. Find Tim's portfolio here and his latest blog commentary here. The Motley Fool's disclosure policy is championship caliber.


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