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Lessons From the Large Caps


Why portfolio manager Joe Milano loves tech and health care, but not financials.

Minyanville: Explain the fund's strategy.

Milano: I am trying to run a pure growth fund that blends out to be a large-cap growth offering. I also own mid-cap growth stocks because I want to infuse the portfolio with some names people haven't heard of. The power of growth investing is compounding. I would much rather own a company that can grow 15% per year for five straight years as opposed to a company that can grow at 20% for two years and then flames out. I am looking for sustainable, durable growth companies. Finally, I use the market's volatility to my advantage.

Minyanville: How so?

Milano: When people are bearish, I tend to be bullish. When people are bullish, I tend to be bearish. The herd moves so quickly. Back in March, you couldn't give a stock away. Now, six months later, the psychology has changed so much. I am not a contrarian, but I do like to lean against the wind a bit. I want to buy great companies, but I don't want to pay exorbitant prices for them.

Minyanville: Moving on, let's talk about technology, which has the largest weighting in the portfolio. What do you like about that sector?

Milano: For one, there is secular growth there. If companies want to grow, but they don't want to hire, then they have to get more productive. Productivity will be important over the next few years, and technology in general is an enabler for that. Also, people have gained religion on how important balance sheets are. The nice thing about technology companies is you don't have to worry about their balance sheets. Most are financially very strong. Third, the valuations of a lot of tech stocks I own were very reasonable.

Minyanville: You like Apple. What's the thesis?

Milano: I think we are in the early stages of growth in the smart phone market. There may be lots of people trying to make a play in that market but, for now, there are two serious competitors: Apple and Research in Motion (RIMM), and I own both. The growth in the iPhone, along with the fact that the Mac line will be a market-share gainer within the PC segment, tells me there is a lot of growth left in this company. At the margin, I have trimmed some of the stock as it lifted, but it is still a top position for the fund.

Minyanville: How about health care? That sector accounts for 18.5% of the portfolio.

Milano: The market doesn't like health care for two reasons: political uncertainty and the fact that, if the economy is recovering, then you want to own more cyclical stuff. So health care has underperformed this year.
No positions in stocks mentioned.
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