Silicon Valley News

Wednesday, March 25, 2009

iGriot: Anatomy of a recession-proof stock fund

A stock fund focused on companies with the largest cash reserves and little relative debt is outperforming the S&P 500 by a wide margin. BIG, a Marketocracy virtual fund composed of such stocks managed by yours truly, has outperformed all U.S. large cap growth and value funds tracked by Morningstar over the past three months.

During a recession, cash reserves are "ultimately a strategic weapon," Google (GOOG) CEO Eric Schmidt recently declared. The software giant is BIG's largest holding. "You'll continue to see us long on cash," notes Microsoft (MSFT) chief executive Steve Ballmer. "In this environment ... cash is king."

The tech industry's strong cash position has set it apart. According to Fitch Ratings analyst Nick Nilarp, the U.S. tech industry has some $260 billion in cash, making it one of the richest sectors. "There's a strong emphasis on preservation of liquidity," said Nilarp. "We think the largest players will use their balance sheets and use their cash balances to ignite mergers and acquisition activity."

BIG's five largest positions include Google, Apple (AAPL), Canon (CAJ), Applied Materials (AMAT) and ABB LTD (ABB). Seven of the top nine holdings are based in Silicon Valley, including Cisco (CSCO). The networking giant, whose $29.5 billion in cash is the largest reserve of all the tech titans,  represents 4.32 percent of the fund. Since its inception on October 10 last year, BIG has outperformed the S&P 500 by some 42 percent. 

BIG is a large cap blend fund, which invests in both growth and value stocks. Over the last three months, the virtual fund has a 6.02 percent return. Click here for a link to charts, graphs and a fund profile. Compare to U.S. large cap blend funds tracked by Morningstar.