Opening Big Arenas For Small Investors

"This fund doesn't have to live in a certain style box," Jeffrey Mortimer says. (By Noah Berger -- Bloomberg News)

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By Danielle Kost
Bloomberg News
Sunday, May 28, 2006

effrey Mortimer's Laudus International MarketMasters Fund is generating some of the biggest gains in the United States by offering shareholders membership to mutual funds they can't join themselves.

Laudus, with $1.9 billion of assets, invests with four fund managers, three of whom block new buyers to prevent their funds from growing so large that returns suffer. Mortimer gains access because he can put more than $20 million in accounts run by the same managers whose funds are closed to smaller investors.

Assets at Laudus more than doubled during the past year, enabling Mortimer to devote more money to Chicago-based William Blair & Co., which shut its International Growth fund two years ago. Mortimer also has money with American Century Investments, Harris Associates LP and Artisan Partners LP, which run some of the country's best-performing mutual funds.

"This fund doesn't have to live in a certain style box," said Mortimer, 42, in an interview from his office in San Francisco, where he's chief investment officer for equities of Charles Schwab Corp.'s asset-management unit.

Laudus, a so-called fund of funds, returned 29 percent in the past year, beating the average 10 percent among competitors, according to Chicago-based Morningstar Inc., an industry research firm. Laudus climbed at an annual rate of 28 percent in the past three years, beating the 13 percent gain of the Standard & Poor's 500 Index and the 26 percent increase of its international benchmark, the MSCI EAFE Index.

Mortimer said he's more bullish on managers who buy shares of companies with earnings that are increasing at above-average rates than he is about so-called value funds that target stocks perceived as cheap relative to certain financial yardsticks. His best-performing pick is the American Century International Opportunities Fund, run by Federico Laffan and Trevor Gurwich at Kansas City, Mo.-based American Century.

The fund, which invests in companies with an average market value of $1 billion, rose 42 percent in the past year. The American Century fund restricted new investments starting in October 2004.

Mortimer also has money with David Herro in Chicago, who manages the $7.5 billion Oakmark International Fund. The fund stopped allowing investments from outside brokers in December 2003. Of Mortimer's four holdings, only Mark Yockey's $14 billion Artisan International Fund allows anyone to buy shares.

The American Century, Oakmark and Artisan funds each rose more than 26 percent in the past year, helped by stakes in financial-services firms including UBS AG, Switzerland's biggest bank, and consumer companies such as London-based liquor maker Diageo PLC. The Artisan and Oakmark funds have more than half of their assets in European stocks.

Mortimer's fund is more expensive for investors, said Gregg Wolper, an analyst at Morningstar. The fund charges fees of $16.50 for every $1,000 invested, 13 percent more than the average equity fund and 33 percent more than the average large-company international stock fund, Wolper said.

Investors also should consider the past year's rally in international stocks when deciding whether to buy a global fund like Mortimer's, Wolper said. The MSCI EAFE Index rose 26 percent on average in each of the past three years, double that of the S&P 500.

"Don't expect it to do what it has done," he said. "If foreign markets are hit hard, this one will fall, just like all the others."

Mortimer is betting on growth stocks after value shares recorded higher returns during the past five years. The Russell 1000 Value Index rose 4.8 percent on average and the Russell 1000 Growth Index declined 1.8 percent.

In the past year, he increased the fund's position in the William Blair growth fund by 8 percent. The William Blair fund advanced almost 31 percent in the past 12 months.

Mortimer, who holds degrees from the University of Chicago and Babson College in Wellesley, Mass., started managing money for Schwab in 1997 and took over the Laudus fund in 2000. He oversees $30 billion, including the company's equity index funds as well as some mutual funds and separate accounts.

Through its fund holdings, Laudus held a combined 416 stocks as of March 31 and had 45 percent of its assets in Japan, Britain and Germany. German carmakers Bayerische Motoren Werke AG and DaimlerChrysler AG are two of the fund's largest holdings, along with British drugmaker GlaxoSmithKline PLC.


© 2006 The Washington Post Company

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