How to Pick Stocks like a Mutual Fund Manager

Harry Domash  |

That old adage about working smarter, not harder, is good advice when it comes to stock picking. After all, why waste time searching out good stocks when you can get mutual fund managers to do the work for you? Besides, it’s their day job, they have access to more information than we do, and they employ squads of analysts to grind the numbers.

You can find out which stocks the fund managers picked by looking at their portfolios. The best place to get that information is on Morningstar, which displays a fund’s top 25 holdings. Get there from Morningstar’s home page by entering a fund’s ticker in the quote box, then selecting Portfolio and then Holdings.

However, there’s a catch. Apparently, many fund managers believe that it’s better to disclose their holdings later rather than sooner. So, they only report their holdings quarterly, and typically more than a month after the close of each quarter. That’s a problem. Here’s why:

Say a fund buys a stock in October. Most funds wouldn’t report that December quarter transaction until February. By that time, the fund may have dumped the stock.

There are a few funds, however, they disclose their holdings monthly, usually just a few days after the end of each month. That information is timely enough to use. One caveat though: Not all mutual funds are created equal. Some are better stock pickers than others.

Morningstar rates mutual fund performance with stars. The best performers in each category get five stars, and the worst get only one star. To me, it makes sense to confine our spying to monthly-reporting five-star funds. How many fit that bill? According to Morningstar, out of 2,247 funds focusing on U.S.-based stocks, only 284 report holdings monthly, and of those, Morningstar ranks only 18 at five stars. I don’t have room to list them all, so here are the top two five-star monthly reporting funds based on the last 12-month returns.

SEI Institutional Managed Trust (TMMAX): Targeted to institutional investors and requiring a $100,000 initial purchase, SEI Institutional Managed has returned 5.5 percent over the past 12-months compared to an average 5.8 percent loss for U.S equity funds. Longer term, over the past five years, the fund averaged a 13 percent return vs. nine percent for the average fund. According to Morningstar, the fund recently added significantly to positions in Merck (MRK), Johnson & Johnson (JNJ), and Wal-Mart (WMT) Stores, and reduced its holdings of Pfizer (PFE), Verizon Communications (VZ), and Entergy (ETR).

Bright Rock Quality (BQLCX): Also, targeted to institutional investors, Bright Rock returned 3.6 percent over the past 12-months, and averaged 12 percent annually over the past five years. The fund recently added to positions in CSX Corp. (CSX), FMC Corp. (FMC), Citrix Systems (CTXS), and Cognizant Technology Solutions (CTSH).

Other monthly reporting top performers you might check out on Morningstar include Brown Capital Management (BCSIX), Johnson Enhanced Return (JENHX), and Smead Value Investor (SMVLX).

I’ve found mutual fund portfolios to be an abundant source of stock ideas. But, just like us, even top mutual fund managers make mistakes. So consider their stocks to be research candidates, not a buy list

For tips and information on the best utilities and dividend stocks from Harry Domash, please check out Dividend Detective.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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