Investing as art

The link between the art world and mutual funds may not seem readily apparent. But if there's any doubt the link exists, you need only meet L. Roy Papp, founder of the Papp group of funds based in Phoenix (800-421-4004).

A tall, patrician, eagle-eyed individual, Mr. Papp has all the characteristics of an artist who just happens to be wearing a dark business suit.

The brochures accompanying his fund prospectuses have vibrant covers that are miniature works of art; Papp and his wife are collectors of Chinese paintings. And, in financial affairs, he has created a new concept in mutual funds, one that invests in US companies with a strong global bent.

There are currently five Papp funds, although one - a small/mid-cap growth fund that started Dec. 15 - is not yet available for purchase in most states. The other four - all no-load funds - have scored solid returns since inception, in each case ringing up returns of 24 percent or more in 1998.

Although the funds have struggled this year, as have many equity funds, they garner enthusiastic recommendations.

Fund tracker Morningstar Inc. gives five-stars to two of the funds - the flagship L. Roy Papp Stock Fund, a growth fund, and Papp America-Abroad Fund, which owns US multinational firms.

Value Line calls the L. Roy Papp fund a "superior choice" for capital growth, with its five-year annualized return of around 21 percent through 1998. The Papp America-Abroad Fund gained an average 24 percent a year. Value Line calls it "highly recommended."

Mutual-fund investment guru Sheldon Jacobs, editor of the No-Load Fund Investor, a newsletter, has a buy recommendation (in "appropriate markets") on both these funds, as well as the Papp Focus Fund and the Papp America-Pacific Rim Fund, an Asian-oriented fund also made up of US multinationals.

After getting his business degree from the University of Pennsylvania's Wharton School, Papp spent 20 years at the Stein Roe Farnum fund group in Chicago, finally becoming a senior partner.

Then in 1975, President Gerald Ford appointed him director of the Asian Development Bank in the Philippines, an experience that not only sparked his interest in Asian art but the Asian philosophy of taking the long view.

He also concluded that the best route to stable investments overseas was not through overseas companies but US growth companies with extensive international operations.

Firms such as Microsoft, GE, and Coca-Cola would grow with Asian economies but provide the stability that comes from investing in American blue-chip stocks.

Emerging-market firms? "I'm scared to death of them," says Papp, who wants to avoid foreign accounting and currency problems as well as political turmoil.

All the Papp funds keep small portfolios - 25 to 30 stocks. The Focus fund owns a maximum of 16 companies. A least half of each fund is unique, and turnover is modest.

The L. Roy Papp Stock Fund has some 25 major positions, including stalwarts Microsoft, Walgreen, G.E., Clorox, Mattel, McDonald's, and State Street Bank.

Papp offers not just a family of funds, but a family of managers. Daughter-in-law Rosellen co-manages; son Harry is president; and daughter Victoria is a money manager.

Despite record levels, Papp calls US equities "fairly priced," citing dramatic changes in the US economy. Computerization has reduced inventory buildups and other ills that once triggered recessions.

Moreover, rising productivity has driven out inflation even as employment has risen.

Bottom Line: Papp remains bullish on US equities "right through 1999." He sees nothing on the horizon that could upset continued growth. The war in Kosovo is tragic in the long run, he says, but may actually shore up markets through increased defense spending and a perception that a recession is now unlikely.

Papp says living in Phoenix allows him a more detached view of stock markets and believes it's no coincidence that the three most "successful US investors" of the era made their marks outside New York - Warren Buffett in Omaha, Peter Lynch in Boston, and John Templeton, in the Bahamas.