Putnam New Opportunities' 1995 return: 46 percent
Fund Manager 'Battles' Market And Wins for His Shareowners
IN the office of mutual-fund manager Daniel Miller, orderly piles of paper and carefully hung children's artwork belie the often frenetic pace at which its occupant operates.
But haste has not made waste for Mr. Miller. Last year, the growth fund he manages for Putnam Investments in Boston returned a hefty 46 percent.
This year, Miller's maneuvering has also served him well. At the end of the first quarter, the Putnam New Opportunities fund was up more than 8 percent - as with last year's return, a number significantly higher than the average stock fund.
The California native, a 13-year Putnam veteran, is pleased with the first-quarter results, although he says his battle with the market has left him feeling a bit "beat up."
"The market is as volatile now as it's ever been," he says in an interview. "And because of that - the wild swing in prices - ... you just feel like you have to be on guard all the time, ready to pull the trigger, ready to buy or sell. And if you hesitate, you miss opportunities."
Miller's fund is considered an "aggressive" growth fund by analysts and Miller alike. It invests in the stocks of less well-established small and mid-sized companies, many technology-related. The fund's goal is to provide capital appreciation over time, but almost no dividend income.
"These are companies that are normally growing so fast as to need their capital to fund their growth," he explains.
The heady gains of Miller's fund of late far exceed the Wilshire 4500, an index of small and mid-sized US companies. The Wilshire 4500 returned 33.4 percent in 1995 and close to 6 percent in the first quarter of '96.
The fund's first-quarter returns, along with daily inflows of new money, have added almost $2 billion dollars to its assets since December, for a total of $6.2 billion.
Stock picking praised
Analysts attribute Miller's success to his stock picking abilities.
Last year, for example, the fund was invested in technology, but did not have an oversized position in it, says Pat Regnier, an analyst at Morningstar Inc., a fund rating service in Chicago. "To do as well as it did and not have been gorging itself on tech is an achievement, and is a testament to good picking," he notes.
The fund was one of the top 10 aggressive growth funds in 1995, according to Morningstar.
Value Line Inc., a fund tracking company in New York, gives Miller a manager rating of 11.2 percent - a number that basically measures how much his expertise adds to the fund's performance each year, explains spokeswoman Colette Coffman.
"He has done an excellent job of managing this fund over the last five and a half years" since its inception, she says.
Miller accepts little of the credit for the fund's returns, but instead points to the team of people he works with at Putnam. He is the director of Putnam's specialty growth division, a group of growth-fund managers and analysts who work together on investment ideas and strategies.
He says the group has come up with criteria for companies to invest in. These are: a minimum earnings growth rate of 17 percent a year; either a dominant or a proprietary position in a market or industry; a strong management team; and strong financial characteristics.
The group, Miller says, tries to find companies that are achieving growth internally, "rather than through cyclical improvement in the economy." This process usually includes visiting the companies to see how they are run.
For example, he says, Netscape Communications Corp., maker of Internet software, has "only been around a couple of years. So to really find out if they have good management you can't just hear them on a road show for one hour, you've got to go out there and visit them."
Before any stocks are actually chosen, Miller says the group identifies trends in the economy, and then selects sectors - ones it expects to be around for several years - that "will benefit the most from those trends."
Mr. Regnier of Morningstar calls what Miller does "theme" investing, but says he does it in a way that is more focused than just picking a sector and buying everything in it. "He's not just going for tech, he's going for little parts of tech that contain the real potential."
Currently, the sectors with the largest weightings in Miller's portfolio are "applied/advanced technology" (29 percent), including stock like that of US Robotics, which makes modems; medical technology and health care (21 percent), and "value-oriented consuming" (16 percent), which includes restaurants, lodging, and some retail.
Miller is invested in a few gaming, or casino-type, companies and some that own bars, but not in companies that sell tobacco products. Like the large majority of fund managers, he picks stocks he thinks will outperform the market rather than making value judgments on the companies.
He acknowledges that the kinds of stocks he holds are often risky, although the companies themselves have strong management and growth potential.
"These stocks trade with less liquidity ... less trading volume, so therefore it takes longer to accumulate a position, it also takes longer to get out of a position," he says, adding that when the market is down, his fund will feel it.
For this reason, the fund is generally more suitable for long-term investors, Miller says. "Anyone who invests out more than three to five years is very appropriate" as an investor.
Younger people saving for retirement or a child's education could use the fund, he notes, adding that it might also be suitable for some retirees who want to keep a portion of their money invested to draw on in later years.
A load fund with big inflows
Investors can buy shares of the fund in either A, B, or M classes. The designations refer primarily to the way the sales load, or commission, is paid, either up front - as is the case of the A class - or spread out over time, which affects annual returns. (The return figures most commonly used to measure the fund's performance refer to the A shares.)
In 1992, the fund's assets reached $237 million, well below the billions it has today. Miller recognizes that "asset gathering" is the goal of the business, but says he wouldn't mind if the inflows slowed for a while. That would give him "a chance to really just think about the stocks that I currently own, rather than what I'll have to be buying in the future to absorb the cash flow."