The Stocks the Funds Are Buying

We all know which stocks have made Wall Street's Buy List. What I want to know -- and I'm guessing you do, too -- is who's doing the buying. Which funds are buying Wall Street's most popular stocks ... and how does their judgment compare with that of our Motley Fool CAPS community?

Here's our latest group of contenders:

Company

Last closing price

CAPS Rating (out of 5)

STEC

$10.76

****

Rio Tinto

$468.00

****

Neurocrine Biosciences

$11.50

***

FX Energy

$7.18

**

DivX

$15.54

**

Spectrum Brands

$5.25

*

MGIC Investment

$26.95

*

Sources: Motley Fool CAPS, Yahoo! Finance.

Global miner Rio Tinto, which has attracted the wandering eyes of BHP Billiton (NYSE: BHP  ) , has plenty of fund fans. Two of them are highly rated by Morningstar:

  • Fidelity International Discovery (FIGRX), a sizeable no-load fund that manager William Kennedy has steered to a 3.76-point-per-year drubbing of the benchmark MSCI EAFE in his three years at the helm. But don't call him lucky. An alpha near 1 suggests that a fair portion of International Discovery's outperformance can likely be credited to Kennedy.
  • Kinetics Paradigm (WWNPX), which, frankly, is one of the best funds I've ever seen. Morningstar ranks it first among its large-growth peers in returns over the three-year and five-year periods. Better yet, Paradigm co-managers Peter Doyle and Murray Stahl produce enough alpha to be called outstanding stock pickers. My only problem with Paradigm is its price tag: 1.63% annually is a lot to pay for a fund with $4.4 billion in assets under management.

But that premium isn't enough to keep me from looking under this fund's hood. Here are the top five stocks held by Kinetics Paradigm:

Company

Last closing price

CAPS Rating (out of 5)

CME Group (NYSE:CME)

$707.00

****

Leucadia National (NYSE:LUK)

$48.97

*****

Brookfield Asset Mgmt. (NYSE:BAM)

$37.29

*****

NYSE Euronext (NYSE:NYX)

$89.00

*****

Wynn Resorts (NASDAQ:WYNN)

$124.60

***

Sources: Morningstar, Motley Fool CAPS.

This strikes me as a pretty strong portfolio. But that may be because our study of the very brief history of CAPS shows that five-star stocks, as a group, wallop the market. Statistically significant? No. But interesting? Very much so.

So, let's focus on one of the five-star stocks Paradigm holds. Rule Breakers recommendation NYSE Euronext stands out for me, and not just because I'm a contributor to that market-beating newsletter's team. I'm struck by the continuing surge in global trading volume. On the NYSE, for example, it's risen 27% over the past year.

With workers becoming less dependent on pensions and more reliant on self-directed investing, I'm inclined to believe that growth will continue for many years, if not decades. Doyle and Stahl appear to agree. In April, they pointed to recent fee increases at both the NYSE and the Nasdaq (Nasdaq: NDAQ  ) as proof of a healthy market for trading.

And today? NYSE Euronext and Nasdaq account for 4.2% of Paradigm's portfolio.

What do you think? Will the above holdings continue to help Doyle and Stahl trounce their benchmark? Let us know by giving us your views on CAPS.


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