The $36.8 billion Harbor Capital Appreciation Fund (HACAX) is one of the best mutual funds. The game plan for remaining on that mutual fund mountaintop calls for taking advantage of short-term opportunities, as well as sticking with the long-term strategies that earned the fund its current success.
How to mix those two? Lately, the fund added to stocks it likes when their share prices dipped in the recent market pullback, even if their financial fundamentals remained sound.
Likewise, the fund added to stocks whose revenues and earnings got hurt during the coronavirus pandemic.
That second group includes the parent company of Louis Vuitton and Moet Hennessy, the Paris-based makers of luxury fashion, jewelry and beverages. Retail U.S. investors can access LVMH Moet Hennessy Louis Vuitton ADRs. "Louis Vuitton has been an incredibly strong 100-year-old brand that has been hurt through the pandemic, impacted by store closures," said Natasha Kuhlkin. Her fellow managers, all with subadvisor Jennison Associates, are Spiros "Sig" Segalas, Blair Boyer and Kathleen McCarragher.
Kuhlkin added, "A lot of luxury companies do not have a big e-commerce presence, so they don't have online sales to fall back on. But the brand remains exceptionally strong. As we exit the pandemic environment, we expect revenues to normalize and companies like this will benefit."
Kuhlkin said, "We also added to our position in Estee Lauder as they have been similarly impacted by reductions in travel and retail but have very strong brand positioning. We also added to Uber Technologies, which has been highly impacted in their global mobility business but will recover as we all start to move more."
Best Mutual Funds: Stock Traits This Fund Seeks
Those add-to names share certain key traits with other names in the portfolio. "We focus on identifying structural growth companies, with long duration, competitive advantages and moats to protect their profit pools," Kuhlkin said. "We're targeting strong secular growers with tailwinds and strong internal drivers, that don't necessarily need a strong economy for growth."
Confident of its ability to find names like those, the fund has assembled a portfolio that reflects its best-ideas approach. Its top-10 holdings accounted for 45% of its shareholders' money as of Dec. 31.
Taking A Bite Of FAANG Stocks
That power pack included four of the five megapopular FAANG stocks — Facebook, Amazon, Apple and Netflix. The fifth FAANG, Google-parent Alphabet, is holding No. 21.
Additional top-10 names include Tesla, Microsoft and PayPal.
Outside the top 10, the fund holds Taiwan Semiconductor. That's one of three holdings that happen to be recent members of IBD's Leaderboard as well as of the IBD 50.
Leaderboard is IBD's curated list of leading stocks that stand out for their technical and fundamental prospects. The IBD 50 is IBD's flagship screen of leading growth stocks that show strong relative price strength and top-notch fundamentals.
Why Taiwan Semiconductor Helps This Portfolio Be One Of The Best Mutual Funds
Kuhlkin likes Taiwan Semiconductor's vital role in producing microchips.
"Taiwan Semiconductor is the largest and most advanced chipmaker," Kuhlkin said. "It has the most diverse group of customers and end markets. They range from Nvidia for artificial intelligence (AI) to AMD for personal computers, Qualcomm for smartphones and Texas Instruments for internet things. They've steadily increased their lead over other foundries, gaining significant market share."
Kuhlkin added, "What's interesting is that they're also gained from outsourcing from other semiconductor makers."
Taiwan earned $3.56 per share last year. Kuhlkin sees that hitting $6.00 within two to three years. "Applying a 30 times multiple yields a $180 price target, so we continue to see upside from the $116 current price (as of Tuesday's close)," Kuhlkin said.
How Tesla Revs Up One Of The Best Mutual Funds
No. 3 holding Tesla is on the IBD Leaderboard. The car and battery maker ramped up overall car production in 2020. It more than doubled its revenue from China car sales.
Tesla began delivery of Model 3 sedans only 11 months after opening its Shanghai factory where they're made.
Kuhlkin said, "What's not reflected in the stock today?" The potential for sales of its $25,000 mass-market electric car. Kuhlkin expects sales to start in 2023 or 2024.
Also not baked into today's share price are potential sales from sales of Tesla cars that are fully equipped for totally autonomous driving.
Similarly, sales of Model Y midsize electric SUVs from Tesla's under construction car-and-battery factory near Berlin are slated to begin in July. And Tesla CEO Elon Musk has an electric pickup Cybertruck on the drawing board for production in Texas. "It's hard to model (revenues and earnings from) all of those long-term factors, but this is going to be a strong 2021-2022 for Tesla," Kuhlkin said.
Feeling Good About PayPal Long-Term
PayPal is another Leaderboard-plus-IBD 50 holding by Capital Appreciation. The firm's services and products form an on ramp for the digital-payments highway. "They recently laid out their long-term vision of doubling their user base by 2025, while growing revenue at a 20% rate," Kuhlkin said. "This will come from rises in digital payments and increases in e-commerce. But also from new uses like buy-now-pay-later, stock trading and cryptocurrency trading."
Further, PayPal's growth helps finance new products and services. "Even early on, we're seeing traction with newer products like buy-now-pay-later, which really is paying for something with installment payments. Because of things like that, I feel good about PayPal long-term."
Best Mutual Funds: Set To Repeat As A Winner
What makes this portfolio one of the best mutual funds? The fund is a 2020 IBD Best Mutual Funds Awards winner, having topped the S&P 500 in calendar 2019 as well as over the prior three, five and 10 years on an average-annual-return basis.
It outperformed in 2020 as well, 54.43% vs. 18.40%. That means the fund will repeat as an IBD Best Mutual Funds Awards winner this year. Investor-class shares (HCAIX) require a $2,500 minimum initial investment.
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