A fund with an unbeatable pedigree

Kiplinger's Personal Finance Magazine, Feb, 1998 by Steven T. Goldberg

Like so many other financial-services companies, Transamerica -- best known for its pyramid-shaped building that graces San Francisco's skyline -- has entered the booming mutual fund business. But unlike the often stodgy funds marketed by many other insurance companies, Transamerica Premier Equity is a sizzler.

As you can see from the tables on page 40, Premier Equity is the top-performing long-term-growth fund over the past year. It finished in the top 10% among its peers in its first full year, 1996. While the fund levies annual expenses of 1.5%, it has no sales charge.

Ordinarily, you might wait for evidence that Premier Equity, which has assets of just $110 million, can put up good, long-term numbers. But the fund is a clone of a $900-million Transamerica retirement account. Premier Equity's manager, Glen Bickerstaff, 41, has also managed the retirement account since 1987. And over the ten years to December 1, 1997, the retirement account has returned an annualized 28.8% -- an all-but-impossible ten percentage points per year more than Standard & Poor's 500-stock index. That's better than any mutual fund has done during the past ten years.

Moreover, the retirement account from which Premier Equity was cloned has shown consistency in its performance. Except for 1989, it has beaten the S&P 500 every year since 1988. The fund is one-third more volatile than the average long-term-growth fund and nearly two-thirds more volatile than the S&P 500. But as Bickerstaff says, "A great deal of our volatility has been on the upside."

Bickerstaff, who works closely with the firm's eight other analysts and portfolio managers, looks for well-managed businesses that have "an inherent advantage over their competitors." He wants companies that have exclusive products, or are the low-cost producers in an industry. "If you have one of these advantages, you are likely to be the winner."

The fund owns just 30 to 40 stocks, many of them industry leaders, such as technology giants Cisco Systems, Dell Computer, Intel and Microsoft, and financial-services companies Merrill Lynch and Charles Schwab. The median market value of the fund's stocks is about $5 billion. On average, these stocks trade at 34 times trailing 12-month earnings. Bickerstaff holds stocks an average of four years and sells when a stock outperforms "our most optimistic projections," or if a company's fundamentals deteriorate.

Bickerstaff sometimes starts by looking at themes, such as baby-boomers investing more as they age, but he spends more time visiting with company managers and tearing apart individual balance sheets and income statements. As a valuation tool, he looks primarily at pretax cash flow relative to what the whole company should sell for in a private transaction.

Worth noting, too, is Transamerica Premier Balanced, another clone of a retirement account. It has returned 36.2% in the past 12 months -- the top performance among balanced funds, and number 75 in the broader growth-and-income category. The retirement account from which Premier Balanced was cloned has returned an annualized 20.6% since Jeff Van Harte and Sharon Kilmer (who also co-manage Premier Balanced) took over as co-managers in April of 1993. That's better than any balanced fund has done. an end to tr