College for the kids

Kiplinger's Personal Finance Magazine, March, 1998 by Manuel Schiffres

When Harrison Cantelow investigated funds early last year, he put a great deal of stock, so to speak, in their long-term track records. "I wanted funds that had been around for ten years and that had been through a bear market," says Cantelow, a 34-year-old construction-equipment operator from Sequim, Wash. One fund that caught his eye was Baron Asset. "I like the way Ron Baron invests," says Cantelow, "the way he focuses on `sunrise' industries and the fact that there's not a lot of turnover."

Cantelow has Baron Asset (appearing in "Best Funds" for the third year) and its manager pretty well pegged. Baron invests in small, rapidly growing companies whose stocks he thinks can double over three to five years. Unlike many small-stock "momentum" investors, who will pay just about anything and who suffered through a miserable 1997, Baron tries to buy growth stocks at what he considers a fair price. Baron's not-so-aggressive approach to small growth stocks makes his fund a good candidate for a moderately long-term portfolio, such as one a parent might put together for a child eight or nine years away from college.

Baron also makes sure that his stock picks will benefit from "megatrends" -- long-lasting patterns stemming from economic and demographic changes. This leads to his focus on industries, such as health care, education and media, that he believes will generate the bulk of the nation's job growth in the future.

Montag & Caldwell Growth specializes in large, growing companies. The fund generally holds only, 35 to 40 stocks, many of them household names, such as Coca-Cola and Gillette. Manager Ron Canakaris, who compiled a superior record running Enterprise Growth, a nearly identical broker-sold fund, buys a stock only if its price is less than what he calculates the company's "intrinsic value" to be. He begins selling if shares climb to 20% above that value.

Fidelity fund, featured in the "Best Funds" series for the fifth time, also concentrates on large stocks. Manager Beth Terrana invests in growth stocks and under-valued issues, and she tilts her portfolio in whichever direction appears more attractive. Oddly enough, her portfolio has seemed split down the middle lately. Its two biggest sector weightings were financial stocks (typically associated with the value camp) and health care (often seen as a growth area).

Foreign diversification for this college portfolio is supplied by Tweedy Browne Global Value, making its first appearance in "Best Funds." While nominally a global fund -- meaning one that can invest anywhere -- its managers say the fund will never have more than 20% of assets invested in the U.S. Global Value is more conservative than Artisan International (see "Investing for Retirement"). Managers Christopher Browne, William Browne and John Spears buy stocks that are extremely cheap on the basis of earnings or in relation to a company's assets. They also hedge against all currency risk. This helps when the dollar strengthens and hurts when it depreciates against other currencies.

To provide ballast should stocks falter, this portfolio includes Loomis Sayles Bond, an eclectic, moderately aggressive bond fund. Manager Dan Fuss, who looks for the best values in the bond market, sees interest rates heading lower as the U.S. economy feels the effects of Asia's financial chaos. As a result, he has extended the fund's sensitivity to interest-rate changes by buying zero-coupon bonds and long-term Canadian-government bonds. The fund recently yielded 7.9%.

Investing for College

Funds and allocation

Baron Asset 20% Fidelity fund 20 Loomis Sayles Bond 20 Montag & Caldwell Growth 20 Tweedy Browne Global Value

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Asset Allocation: 80% in stock funds (with 20%) in foreign stocks) and 20% in bonds.

Designed for: Investors with a horizon of seven to ten years. Appropriate for families with children in elementary school.

Minimum to replicate: $12,500 ($10,000 in IRAs)

How to get started: In a regular account, start with Baron Asset, then add (in order) Fidelity, Tweedy Browne, Montag & Caldwell and Loomis Sayles. If using an automatic-purchase program, start with Montag & Caldwell, whose minimum to invest via bank draft is $50, and follow with Baron Asset (automatic-purchase minimum, $500). If you are saving through an IRA, the minimum for Fidelity, Montag & Caldwell and Tweedy Browne is $500. ing legal fee