These funds are gambling on casino stocks.
Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.
This article originally appeared in Morningstar FundInvestor, an award-winning newsletter that presents investment strategies and tracks 500 funds.
Betting on the house can be a good strategy, but it isn't foolproof. Stocks falling into Morningstar's "Gambling/Hotel Casinos" industry have been big losers lately. On a market-cap-weighted basis, the group has fallen 14% in the three months through Feb. 1, 2008. Some of the industry's biggest players, such as Las Vegas Sands
These may be temporary concerns, but there are also other longer-term worries. A big part of the successes of these firms, particularly the big guys mentioned above and Wynn Resorts
With these ideas in mind, we took a look at mutual funds in the 500 that have put a lot of chips down on these names.
This fund was having a really strong year in 2007, right up until early November when its gaming holdings started reporting sour results. The fund owns both Las Vegas Sands and Wynn and also counts Boyd Gaming
Only 29 stocks made the cut for this concentrated mutual fund's portfolio, but Las Vegas Sands, MGM Mirage, and Wynn are three of them. Together, they account for 11.5% of the $5 billion fund's assets. Like Baron, Marsico Capital Management owns these stocks in several of its mutual funds (including 21st Century
Baron and Marsico have the largest positions in these stocks in the 500 by far, but a few other funds have stakes in them. Each of the fund's listed above has taken a stake of at least 3% of assets in Las Vegas Sands or Wynn. One stock's performance probably won't make or break any of these funds. It's worth keeping in mind that they have benefited from rises in these stocks in recent years and could get nicked if they were to continue to slump.
Paul Herbert, CFA, is a senior fund analyst with Morningstar.
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