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Investing Specialists

Seven Conviction Buy Ideas from Vanguard PRIMECAP

A closer look at one of our Ultimate Stock-Pickers yields seven solid buy ideas.

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By Greggory Warren, CFA | Senior Stock Analyst

For a mutual fund company that was built on the premise of passive investing, Vanguard has a fairly decent (albeit small) lineup of actively managed funds. We follow one of them,  Vanguard PRIMECAP (VPMCX), very closely here at Ultimate Stock-Pickers, owing to the fund's rather impressive long-term track record since its inception in 1984. Not only has PRIMECAP beaten the S&P 500 Index (SPX) on a regular basis but has done so running a larger portfolio than we're accustomed to seeing with our top managers. As you may recall from a recent article, the average number of holdings for each of our 26 investment managers is 60. Only two managers, PRIMECAP being one of them, hold more than 100 stocks, while 15 of our managers have 50 or fewer holdings.

In most cases, we avoid including managers in our list of Ultimate Stock-Pickers who are too diffuse in their holdings, because closet indexers tend to give very few signals that investors can exploit for their accounts. We make an exception for PRIMECAP because of how it is managed. The fund employs six portfolio managers, including Howard Schow, Theo Kolokotrones, and Joel Fried, who have considerable experience and manage the lion's share of the fund's assets. Within the context of the fund's core philosophy of finding unappreciated growth stocks and waiting patiently for them to pay off, these six managers might share ideas but each of them makes his own autonomous buy and sell decisions for the piece of the fund that he manages.

The Morningstar Ultimate Stock-Pickers Team does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.