Get focused, reap rewards

Tom Marsico's high-flying gains as manager of the Marsico Focus fund bespeak "boldness," but his chutzpah in office politics virtually shouts it.

Mr. Marsico used to work for Denver-based Janus Funds, and in 1997 he tried to take it over.

He attempted to increase his partial share of Janus to a controlling position because, he says, he believed the company was focusing on asset growth instead of profit.

Jaded about Janus

It backfired, and Janus let him go.

But Mr. Marsico hasn't looked back. Within months he became a competitor, launching Marsico Capital Management across town.

And at Marsico Focus, he has engineered blistering returns of 51.3 percent last year compared with 22.7 percent for the Standard & Poor's 500 Index.

Just as astonishing, total assets handled by Marsico Capital Management have ballooned to $7 billion.

Asked if he is glad to have left Janus, Marsico takes a subtle dig at his former employer. "I'm really pleased we've been able to establish a successful company that is investor focused."

Hold on

"Investor focused," indeed! Marsico excels - logging a 22.4 percent average annual return in nearly 10 years as manager of the Janus 20 Fund - by pursuing a simple but distinct strategy. He makes big buy in a small number of big companies, about 25.

If they continue to show promise, he holds them for years. He follows what he calls a "blend" approach, drawing from the strategies of investors who buy stocks that are undervalued or that enjoy substantial profit growth.

Marsico Focus relies on companies "with strong unit growth or those that in some way are changing the manner in which they do business, either as a result of regulatory change, new product development, or merger and acquisitions," he says.

Large-capitalization stocks get priority because they enjoy a "great advantage."

"Our slant is toward large caps because the environment is very positive for them given the stability of the economy, the worldwide nature of markets, and their ability to leverage their size in research and development and marketing," Marsico says. He also aims to ride tectonic trends.

Tough call

"The biggest call I've made in my career is the sustainability of the economic expansion that we have been in and the belief that interest rates would move lower over a long period of time," he says.

That call compelled him to buy and keep a bulldog hold on interest-rate-sensitive stocks like Fannie Mae and Merrill Lynch through even the foulest market downturn.

As rising interest rates ravaged financial stocks in 1994, Marsico hung on. The next year, stocks of the two companies soared.

More broadly, because of his dogged devotion to stocks he deems promising, Janus 20 staggered to an average annual loss of 0.54 percent from 1992 until 1994 as the S&P 500 annually rose 6.3 percent.

But as the economy drove the stock market to new highs, Janus 20 surged.

Marsico remains optimistic about the economy. Strong US growth should continue, foreign economies should revive, and interest rates should remain low, he says.

Marsico puts his money where his prognosis is, loading up on auto stocks, a highly cyclical segment.

High employment and strong consumer spending nationally have sustained earnings growth for auto companies. Moreover, automakers have slimmed down by selling off nonessential businesses and outsourcing many services and parts manufacturing. Marsico Focus holds Ford Motor Co. and General Motors Corp.

Positioned for takeoff

But the fund's holding in UAL, parent company of United Airlines, best exemplifies Marsico's investment strategy. Marsico says most investors have not recognized the new stability in the airline industry, which is traditionally vulnerable to economic cycles.

The growth in supply is now in step with demand, and the rise of hub networks has made airlines less vulnerably to the ravages of fare wars, he says.

United, especially, looks well positioned for a global economic recovery because of its big stake in East Asia. Marsico plays global trends through multinationals instead of foreign firms.

As with Fannie Mae and Merrill, Marsico held onto United through lean times. He began buying UAL for Janus 20 in 1996. In early 1997, unhappiness among United pilots spooked Wall Street, but Marsico held on and later saw his holdings surge.

Marsico avoids stocks devoted to content on the Internet, calling them overvalued. Instead, he has snapped up stock in companies building the Internet's infrastructure.

The fund has a large stake in cable TV companies, which are a growing conduit for online access. Time Warner and Media One, recently purchased by AT&T, are two of his favorites.

No limits

When Marsico left Janus, he was managing about $15 billion. Now, after less than two years on his own, Marsico is nearly halfway there.

But he accepts no limits.

"We feel that we could expand 20 times from where we are right now."

Marsico funds

Both funds offered by Marsico have only been available to investors since the beginning of last year. And both have outperformed the Standard & Poor's 500 Index since their inception. The company (888-860-8686) requires an initial minimum investment of $2,500, but you can open an IRA for $1,000.

Fund return YTD 1-yr.

Marsico Focus 14.5% 32.1%

Marsico Growth & Inc. 13.0 30.4

S&P 500 Index 9.8 21.9

Top fund holdings

Marsico Focus

Percentage of

Company portfolio

EMC/Mass 7.4%

IBM 6.0

Time Warner 5.0

Coca-Cola 4.9

Intel 4.9

Microsoft 4.7

Citigroup 4.7

Dell Computer 4.4

Ford Motor 4.3

Pfizer 4.2

Marsico Growth & Income

Percentage of

Company portfolio

EMC/Mass 6.4%

Time Warner 5.0

Microsoft 4.6

Pfizer 4.3

Dell Computer 4.3

IBM 3.9

Ford Motor 3.8

Citigroup 3.4

McDonald's 3.0

Anheuser-Busch 3.0

Source: Morningstar Inc. Returns as of 5/19 Holdings as of 12/31/98