Fund name: Edgewood Growth (EGFFX)
Objective: The fund seeks long-term capital appreciation by investing in a core group of 15 – 35 stocks, almost all in the US. Their primary targets are "companies possessing fundamentally strong market positions in growing industries, exceptional earnings power, and consistency of earnings performance." While they’re not restricted to large caps, they anticipate "a bias toward larger capitalization issues" because those are the companies likeliest to survive their quality screens.
Adviser: Edgewood Management, LLC. Edgewood was founded in 1974 and primarily provides investment services to high net wealth individuals and institutions. It’s wholly owned by its employees and has $4.1 billion under management. Edgewood Growth is its only retail fund, though it manages nearly 300 separate accounts with the same investment style.
Managers: The fund is managed by a team headed by Alan W. Breed. Mr. Breed is President of Edgewood Management and has been a principal at the firm since 1994. Edgewood was founded by his father. There are seven other members of the investment team. Most of them have 20 or more years of investment experience and their bios suggest a wide range of interests, experiences and perspectives. The Statement of Additional Information lays out a nice explanation of the team’s internal management: "Weekly research meetings provide a forum where the … professionals discuss current investment ideas within their assigned industries. Generally, the entire portfolio team, or a sub-set of the team, then debates the merits of recommendations, taking into account the prevailing market environment, the portfolio’s current composition and the relative value of alternative investments. Investment decisions are made by majority agreement of the portfolio team." As a guy who debated and coached debaters for a quarter century, this strikes me as an eminently functional arrangement.
Management’s Stake in the Fund: The firm is owned by its employees, with most of the employees having a roughly even stake in the business. It’s not clear how substantial the managers’ investment in the fund is. The SAI says it’s almost zero, but SAI’s often don’t provide a good snapshot of ownership when a fund is very new. Gui Costin, a fund representative, reports that Mr. Breed has $150,000 in the fund and one of the other managers has about $100,000.
Opening date: February 28, 2006.
Minimum investment: $3,000 for regular accounts, $2,000 for IRAs.
Expense ratio: 1.5%, after waivers, on assets of $114 million.
Comments: The story here is pretty straightforward. The folks at Edgewood are disciplined, patient growth investors. They look for dominant firms selling at reasonable prices, they look for committed management, and then they buy and hold. Currently they hold just 22 names – the top five holdings as of 10/31/07 are Research in Motion, Genzyme, Google, Corning and Gilead Sciences – and look to keep companies in the portfolio for at least 3 – 5 years.
The argument for the fund is that they do a really good job of executing their strategy. This fund is run in the same style as their large growth equity accounts, which have been phenomenally and consistently successful for the past 20 years. By way of highlights:
So far, Edgewood Growth’s performance has closely paralleled the large growth composites, which suggests that the team has been successful in applying the separate accounts’ discipline to a mutual fund format. Given a low turnover rate (less than one-third of the average large growth fund’s) and general tax sensitivity, it’s likely that investors actually got to keep most of the money that the Edgewood folks generated for them.
Morningstar’s online software doesn’t allow a search for 20 year returns. If we look at 15 year returns, Edgewood is in the company of a handful of great funds (e.g., American Funds Growth Fund of America, Brandywine Blue, Fidelity Contrafund, Janus Twenty, Vanguard Primecap), almost all of whom are – to put it gently – bloated.
Bottom Line: For long-term investors, not just those hoping to play the long-anticipated resurgence of growth investing, this fund seems to be about as compelling as anything on the market. That conclusion is shared by the managers of JPMorgan Private Bank. JPMorgan Private Bank caters to the wealthiest individuals and families (it estimates that about 40% of the Forbes Billionaires list are clients) and is one of the largest private banks in the world. It provides a full-range of investment services to its clientele. And it just selected Edgewood Growth as one of the large-growth options for its clients. Wachovia, the nation’s fifth-largest wealth manager (who knew?), just made the same decision for their private banking clients. Which is to say, these folks appear to be the real deal.
Fund website: Edgewood Funds, but I wouldn’t put a lot of hope in the site. It’s pretty clearly designed for use by its separate account clients, so there’s precious little information about the fund (check the "materials" section for a prospectus, SAI and application) though a fair amount about the performance of the separate accounts managed in the same style as the fund.
Since the retail fund has its backoffice operations handled by the folks who sponsor the Advisors Circle and Advisors Circle II funds, you can use their website to access updated portfolio information for Edgewood: http://sei2funds.seic.com.