Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 18, 1990 TAG: 9003162773
SECTION: BUSINESS PAGE: BUS1 EDITION: METRO
SOURCE: CAROLE GOULD THE NEW YORK TIMES
DATELINE: LENGTH: Long
But the fund's investment managers - self-proclaimed "contrarians" James L. Manley and Kenneth G. Fuller - were not daunted by the inauspicious beginning.
Although less-than-enthusiastic investors forced them to wait five months before investing, they left the gate with a bang.
With holdings divided into three categories - the hidden (unknown stocks), the hated (unpopular stocks) and the half dead (stocks in depressed industries) - the fund had a sterling first year, returning 56.9 percent in 1989, compared to a 31.6 percent rise in Standard & Poor's 500-stock index.
More impressive, Vista was the only growth-and-income fund in the year's top 25 performers.
It posted more than double the gains of all growth-and-income funds, which returned an average of 23.2 percent in 1989, according to Lipper Analytical Services.
Growth-and-income funds, which invest in dividend-paying stocks and are considered the industry's "bread and butter" funds, don't give investors the sizzle of a hot stock fund; they are middle-of-the-road funds that almost never become top performers.
So what's behind Vista's success?
Enter the odd couple. Manley, 50, is an MBA in a dark suit who has spent his entire career with Chase.
Fuller, 44, traveled a more circuitous route to money management.
Recuperating from grenade wounds that he suffered in Vietnam, he began reading Adam Smith at a military hospital in 1970.
"It seemed to me that money managers were well paid to study things, to use their minds and be creative," he said.
"Besides, you can wear blue jeans to work." It wasn't until 1985, after 15 years as a securities analyst, that he joined Chase and got to wear his jeans full time.
While the reserved Manley and the jocular Fuller are opposites in many ways, their personal differences merge into one cogent investment philosophy.
They look for stocks that are out of favor, primarily among small companies, whose prices they expect to double in two or three years.
"Companies are run by human beings who tend to make mistakes and then correct them," said Fuller.
Vista buys in, he said, just as the companies seem ready to fix their mistakes.
Vista's strong performance last year, of course, is no guarantee of a strong performance this year.
Even trying to replicate that performance "could lead to disaster," Manley said.
"We have no intention of being up 57 percent again next year."
The team has already shifted the strategy that won such success last year.
The $10 million fund is moving slowly into the stocks of big companies - Cray Research Inc. and the Control Data Corp. are two holdings - to stay on top of market opportunities.
It is now heavy on technology and energy stocks and light on stocks of companies in financial services and the consumer sector - a complete flip-flop from last year's strategy.
And it has sold off nearly all the holdings that made it sizzle last year: Spiegel Inc., the Chicago-based catalog merchandiser; the Service Merchandise Company, the catalog showroom operators based in Nashville, and the warrants of the Federal National Mortgage Association, or Fannie Mae.
Both men say the fund's small size gives them room to move quickly as the market shifts.
And they get even more maneuvering room by using S&P 500 futures when they are nervous about the market and don't want to be fully invested.
Index futures let investors trade without having to buy all the stocks individually.
The futures make up 20 percent of Vista's portfolio and are used as a hedge, not for speculation.
The fund's biggest holding is Seagate Technology, a computer peripherals company in Scotts Valley, Calif.
Because the market lacked confidence in the company's earnings forecast when Fuller bought it late in 1988, Seagate falls into the "hated" portion of the portfolio.
But he says management is cutting costs and the stock price fails to reflect Seagate's acquisition of Control Data's data storage division.
He calls the stock a risky play for individual investors.
The team's favorite "hidden" stock is California Biotechnology Inc., in Mountainview, Calif.
It is not well followed because it is small and its stock price has tumbled to about half the level of its initial public offering in the early 1980s.
But the value of its headquarters and its cash holdings equal the current stock price, and Manley reasons that any scientific breakthroughs - the company produces growth hormones and cardio-pulmonary products, among others - come to investors free of charge.
A "half dead" holding is the Parker Drilling Co., of Tulsa, Okla., a contract oil well driller with a big international business.
Parker cut its debt from more than $300 million in 1982 to less than $20 million today.
Vista bought Parker three months ago for $7 a share; it now sells for about $11.
by CNB