David Rose propelled his American Century Giftrust to the top ranks of U.S. mutual funds by buying shares of companies whose earnings prospects have been ignored.
Rose increased his stake in NII Holdings Inc., a seller of mobile-telephone services in Latin America whose shares doubled in the past year. He also added to his position in America Movil SA, Latin America's biggest mobile-phone company. The company's American depositary receipts have gained 78 percent since last November.
"We're interested in finding growth and buying growth in areas where the rest of the market isn't focused," said Rose, 36, in an interview from his office at American Century Investments in Kansas City, Mo.
American Century's $970 million fund has gained 24 percent in the past 12 months, ranking eighth of 240 funds tracked by Bloomberg that buy shares of companies with the fastest-growing earnings. It's the No. 1 fund in the group among those with at least $950 million to invest. The top-performing "growth" fund is the $125 million Hennessy Focus 30 Fund, run by Neil Hennessy, up 37 percent.
Rose improved Giftrust's performance since replacing Linda Peterson in March 2004. Even with the recent gain, the fund declined at an annual rate of 12 percent during the past five years, placing 169th of 179 funds with similar investment styles, data compiled by Bloomberg show. The fund's worst year was 2001, when it plummeted 35 percent.
Giftrust, which holds 85 stocks, invests in companies valued at $1 billion to $15 billion whose earnings rose 35 percent on average in the third quarter. Rose typically holds stocks for about six months, though he has sold shares that trail the market after as little as six weeks.
He cut his stakes this year in U.S. retailers, including Best Buy Co. and Men's Wearhouse Inc.
American Century founder James Stowers Jr. opened Giftrust in 1983 for clients to invest money they plan to give to others, mainly their children. Investors are required to keep their money in the fund for at least 18 years and can withdraw early only in certain circumstances when all parties agree to break the trust.
"That's the biggest caveat," said Dan Culloton, an analyst at Morningstar Inc., a fund-research company in Chicago. "Over the years, it has been a pretty volatile fund."
Culloton recommends that investors consider Giftrust's sister fund, the $915 million American Century Heritage Fund, which is also managed by Rose and has many of the same holdings. Unlike Giftrust, Heritage allows investors to withdraw money at any time.
After graduating with a business degree from Washington University in St. Louis, Rose took a job at his mother's publishing company, which printed and distributed a magazine for single people in Milwaukee. He and his mother both met their spouses through the publication.
Rose decided to go into money management in 1995 after he inherited money from his grandfather. He went back to school at the University of Wisconsin in Madison, graduating with a master's degree in finance, investments and banking. He joined American Century in 1998. He manages Giftrust with Kurt R. Stalzer, 47, who has worked on the fund since 2001.
At Giftrust, one of Rose's first investment decisions was to buy shares of Reston-based NII Holdings. It's now the fund's largest holding, accounting for 7 percent of assets.
NII Holdings, a former unit of Nextel Communications Inc., exited bankruptcy in 2002. The company has since increased its network in Mexico and netted 183,200 new subscribers in the third quarter, 54 percent more than a year earlier.
"All of a sudden, their business opportunity got a lot larger," Rose said.
The fund manager in October 2004 started buying shares of America Movil, controlled by billionaire Carlos Slim, to take advantage of growing demand for telecommunications services in Latin America. The Mexico City-based company expects to add 20 million wireless subscribers next year. Its earnings rose 11 percent to $1.56 billion in the nine months ended Sept. 30.
Rose cut his consumer holdings to 13 percent from 17 percent at the end of August because he expects consumer confidence and spending to decline because oil prices are 22 percent higher than a year ago. The National Retail Federation forecast that holiday retail sales will rise 5 percent, the slowest increase since 2002.
He sold 350,000 shares of Best Buy, the largest U.S. electronics retailer, during the past three months. The Richfield, Minn.-based company last month said costs from hurricanes Katrina and Rita will reduce full-year profit by 2 cents a share. Shares of Best Buy fell 4.8 percent in the third quarter after jumping 27 percent in the second.
Rose also sold the fund's 270,000 shares of Men's Wearhouse. The Houston-based seller of men's suits and apparel said sales at U.S. stores open at least a year rose 6.7 percent in October, after gaining 8.2 percent in September. The company's shares fell 22 percent in the third quarter.
"When we saw a slowing trend, even though it wasn't dramatically slowing, we sold it," Rose said.