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 this week ... and how does their judgment compare with that of our Motley Fool CAPS community?

Here's our latest group of contenders:

List-topper American Software, a maker of (surprise!) software for managing business functions, has an interesting fund following. Here's a sampling:

• TFS Market Neutral (TFSMX), a long-short fund that borrows from hedge funds to produce outsized returns. Market Neutral used that strategy to remarkable effect last year, walloping the S&P 500 by more than eight percentage points. This year hasn't been as kind; the fund trails by more than two points.
• Nicholas-Applegate US Micro Cap I (NAMCX), which is making its fourth appearance in this list. Need I say more?
• DFA Tax-Managed US Small Cap (DFTSX), which opened for business in December 1998. Top manager Robert Deere has returned more than 12.3% annually since.
• Vanguard Total Stock Market Index (VTSMX), which made its debut in this column on Monday and remains one of the very best options for gun-shy investors who are OK with slightly lagging the market.
• TFS Small Cap (TFSSX), which is a brand new fund that isn't yet beating the market. But since it's a product of the same shop that produced Market Neutral, it may be worth watching.

Of these funds, hedge-fund wannabe TFS Market Neutral that interests me most. Here are its top five stock positions:

This strikes me as an excellent portfolio. Consider top holding ICO. Returns on equity and capital have risen dramatically since 2003. Free cash flow, naturally, has blossomed over the same period.

CAPS All-Star pwv77 sees no end to the expansion:

Here's another snoozer of a company. Manufacturer of resins, concentrates, and specialized polymers. The company operates all over the world: North America, South America, Australia, and Europe. The customers of this company manufacture chemicals, explore for oil, and make plastics! The numbers are decent, and the growth rate is faster than almost all other companies in the industry (fabricated plastics and rubber). Companies like this seem essential in the exploding economies of the geographical areas it serves.

And they're equally essential for long-short funds like Market Neutral, which depend on cheap stocks in core industries to hedge against a housing-fueled economic downturn.

For me, it often helps to see what superior stock pickers are buying. If that describes you, too, then consider Champion Funds. Shannon Zimmerman's picks are up 11 percentage points on their respective benchmarks as I write. Check out the entire portfolio with a free, no-risk trial.

That's all for now. See you back here next week, when we once again look at the funds behind the fantasy.