UNTIL RECENTLY, THE PUTNAM VOYAGER FUND was on life support, plagued by weak performance and massive outflows. The flagship growth fund’s woes became a symbol of Putnam Investments’ struggles, which included a market-timing scandal in 2003. Voyager’s assets now total about $3.6 billion, down from $46.2 billion in 2000. But under the leadership of Bob Reynolds, the former chief operating officer at Fidelity who took over Putnam Investments last year, there are some encouraging early signs — one being the Voyager Fund’s progress.
Nick Thakore, 42 years old, who took over Voyager 13 months ago, after running River Source Growth Fund, is off to a promising start. So far this year through Dec. 2, the portfolio (PVOYX) is up 58%, besting the Standard & Poor’s 500 by 33 percentage points and putting it in the top 3% of Morningstar’s large-cap-growth category.
In looking for stocks, the Boston-based Thakore, who also ran money for Fidelity, pays attention to valuation. “If I think a company’s valuation is out of line, I won’t own that stock,” he says. “In most market environments, there are plenty of good growth stories at attractive valuations, so you can afford to let go the ones that aren’t.” Barron’s caught up with Thakore — who was attending an investment conference — by phone last week.
Barron’s: Could you talk about some of the changes you’ve made to the fund since taking over late last year?
Thakore: It is a growth fund, but I also have a focus on valuation. At times, this fund was more of a momentum aggressive growth fund, especially in the earlier days. I’ve focused on risk-adjusted returns and managing risk in the fund, too. So I limited the maximum sector bets and the size of individual stock bets, and I’ve been trying to make sure that I generate the majority of the fund’s performance from stock-picking, versus other variables like sector bets.
Late last year and earlier this year, we had one of the best stock-picking environments I’ve seen in my career, because we had a liquidity-driven selloff, and everything went down. So I had a chance to buy stocks at unbelievable levels. There were a lot of exciting names I put in the fund. Additionally, valuation for a couple of years actually had not been working well for stock selection. But starting late last year, it was a particularly good time to care about valuation as a growth manager.
What are a couple of names you added during the market’s recent meltdown?
I’ll give you a high-quality name and a lower-quality name. Apple [AAPL] got down to just below 80 in January. At that level, 40% of Apple’s market value was in cash. Based on the amount of free cash flow they generate every year, the entire market value of the company was going to be cash in five years, even if they never grew again. That is a crazy valuation for a super-high-quality growth company. The stock has more than doubled from its low, to around 200 last week.
On the other end of the spectrum is Wyndham Worldwide [WYN], which operates hotels and which is not a great growth company, but the stock got down to three-times earnings. Our view was that the balance sheet was going to be OK. The stock is trading at around 19, versus a little under 3 in March.
You hold 150 stocks in the portfolio, more than some of your competitors. Why so many holdings?
This approach can generate a lot of performance, but it also takes some of the risks down in the portfolio. The top 20 names in the fund do account for between 40% and 50% of the holdings, so I have plenty of bets at the top. But I tend to add in a lot more names to diversify the portfolio for risk-management purposes. This gives me the best of both worlds. I can still generate plenty of performance, but it helps me manage the risks out of the equation better than if I picked just 10 names. If you get a few of those names wrong, you are pretty much done at that point.
How is the current stock-picking environment, compared to the one in March?
The market bottom in March was probably a 10 in terms of stock opportunities. But the good news is that it is still a seven or an eight. I still see many, many names where we can make a lot of money. The difference is that in March, at the market bottom, almost all of the exciting opportunities were cyclical names. But now, because so many of the more high-quality stable names have been left behind, I also see good opportunities among stable growth stocks.
You mentioned recently that while you see a shorter-term recovery in the works, you do have longer-term concerns. Is that still your view?
Yes, it is. The secular worries that people have are legitimate, and they are that the consumer is challenged. The government has a lot of debt. A lot of the leverage that was in the financial system isn’t coming back any- time soon, and the tax policies of [the Obama] administration have some risk. So the worries are real, but none of them preclude the likelihood of a sharp cyclical recovery.
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