Thomas Plumb, whose balanced fund is in the top 1% in its category, doesn’t hold large positions in retail stocks outside of Amazon and Alibaba. Instead, he’s loaded up on payment processors, including Visa, Mastercard and Discover Financial Services.
DFS, +1.58% The “overwhelming trend” for U.S. consumers “is not where they buy but how they buy,” said Plumb, who oversees the Plumb Balanced Fund PLBBX, -0.03% which has a five-star rating from Morningstar, and the Plumb Equity Fund PLBEX, -0.19% which has a four-star rating.
Plumb is the CEO of Madison, Wisc.-based SVA Plumb Financial, which runs about $2.7 billion mainly for institutional clients.
Visa V, -0.30% a perennial winner, is the top holding of both funds. The credit card company is up 15% this year, easily outpacing the S&P 500 Index SPX, -0.65% and a cumulative 579% over 10 years.
Plumb pointed to Visa’s very high after-tax profit margin, which has been 46.5% over the past 12 months, according to FactSet, as its ace in the hole.
Balanced funds tend to contain a mix of value-style stocks and bonds, and are marketed toward more conservative investors. The Plumb Balanced Fund is unusual in that the stock portion consists of growth-style stocks. That helps to explain how the mutual fund has outperformed most of its peers in the short and long terms. (Please see table below.)
The Plumb Balanced Fund counts as holdings high-flying chipmaker Nvidia Inc. NVDA, -3.78% Chinese technology conglomerate Tencent Holdings Ltd. TCEHY, -4.01% and software company Adobe Systems Inc. ADBE, -1.41%
PLBBX, -0.03% Still, Plumb favors payment processors. Plumb said in an interview on May 10 that the following companies were held in both the balanced and the equity fund as of March 31: Mastercard MA, -0.55% Synchrony Financial SYF, +1.24% and Discover Financial Services DFS, +1.58%
“Electronic-digital purchasing is exploding around the world,” he said. “Cash has always been the medium of exchange in the United States, but it is now being reduced. When you and I go into a store [in the U.S.], about 14 cents of every dollar are spent using a Visa card. If we buy something online, 42 cents of every dollar goes through a Visa card. So Visa has higher penetration in the fastest-growing retail-purchasing process.”
Plumb funds
Both the Plumb Balanced Fund and the Plumb Equity Fund were established in May 2007 and follow the same strategies SVA Plumb Financial uses for its clients. The Plumb Balanced Fund typically has about 65% invested in stocks and 35% in bonds.
The balanced fund’s stock portfolio shows higher valuations on a number of measures than its benchmark, owing to the fund manager’s strategy of buying growth-style companies. Price-to-earnings, price-to-book and price-to-sales metrics are all much higher than those of the Morningstar Moderate Target Risk category.
“With value-stock investing, you might find the best managed steel company in the world, but they are tied to their cycles,” Plumb said. “They are basically not participating in the growth areas of the world. Once we feel we have strongly identified some innovative, disruptive changes, then we look at who’s driving those changes, who’s enabling those changes and who’s benefitting from those changes.”
Balanced or not?
A balanced fund may not be appropriate for a long-term investor who is trying to maximize growth. But a growth-oriented approach requires patience during weak periods for the stock market.
Plumb said his experience has shown that “in adverse markets, people didn’t move from a stock fund to a balanced fund; they wanted to go to something more conservative, such as a bond fund or money market fund. When they were excited by the market, they were looking for competitive total returns in a good stock market.”
So the balanced fund is meant to provide a middle ground for investors who may not have strong-enough stomachs for a pure equity approach.
Here’s how the balance fund has performed against the competition, according to Morningstar:
| 2018 through May 10 | Average annual return - 3 years | Average annual return - 5 years | Average annual return - 10 years | |
| Plumb Balanced Fund | 6.3% | 10.2% | 10.8% | 6.9% |
| Morningstar Moderate Target Risk category | 0.2% | 5.9% | 6.5% | 5.9% |
| Percentile rank in category | 1 | 1 | 1 | 23 |
| Source: FactSet | ||||
The total returns are net of annual expenses, which are now 1.19% of assets for both funds.
Plumb said the balanced fund’s equity holdings are “about” 85% correlated with those of the Plumb Equity Fund, as the balanced fund is more diversified.
Here are the top 10 equity holdings (of 36) of the balanced fund as of March 31:
| Company | Ticker | Share of fund | Total return - 2018 through May 10 | Total return - 3 years | Total return - 5 years | Total return - 10 years |
| Visa Inc. Class A | V, -0.30% | 2.9% | 15% | 93% | 204% | 579% |
| Constellation Brands Inc. Class A | STZ, -0.08% | 2.4% | -3% | 95% | 362% | 1,160% |
| Mastercard Inc. Class A | MA, -0.55% | 2.3% | 28% | 111% | 260% | 606% |
| Booking Holdings Inc. | BKNG, -0.93% | 2.3% | 20% | 73% | 172% | 1400% |
| Abiomed Inc. | ABMD, -0.18% | 2.3% | 97% | 448% | 1,547% | 2,421% |
| FleetCor Technologies Inc. | FLT, -0.36% | 2.2% | 6% | 32% | 151% | N/A |
| WEX Inc. | WEX, +0.88% | 2.1% | 24% | 52% | 141% | 449% |
| Dassault Systemes SA ADR | DASTY, -0.97% | 2.1% | 24% | 73% | 127% | 367% |
| Discover Financial Services | DFS, +1.58% | 2.1% | -2% | 34% | 80% | 394% |
| Intuitive Surgical Inc. | ISRG, -2.61% | 2.1% | 28% | 184% | 181% | 386% |
| Sources: Plumb Funds, FactSet | ||||||
You can click on the tickers for more on each company, including news, price ratios, estimates and financials.
Growth fund
The Plumb Equity Fund had 31 stock holdings as of March 31. Here are the top 10 holdings:
| Company | Ticker | Share of fund | Total return - 2018 through May 10 | Total return - 3 years | Total return - 5 years | Total return - 10 years |
| Visa Inc. Class A | V, -0.30% | 4.8% | 15% | 93% | 204% | 579% |
| Dassault Systemes SA ADR | DASTY, -0.97% | 4.4% | 24% | 73% | 127% | 367% |
| WEX Inc. | WEX, +0.88% | 4.2% | 24% | 52% | 141% | 449% |
| Mastercard Inc. Class A | MA, -0.55% | 4.1% | 28% | 111% | 260% | 606% |
| Constellation Brands Inc. Class A | STZ, -0.08% | 4.1% | -3% | 95% | 362% | 1,160% |
| Abiomed Inc. | ABMD, -0.18% | 3.9% | 97% | 448% | 1,547% | 2,421% |
| Booking Holdings Inc. | BKNG, -0.93% | 3.9% | 20% | 73% | 172% | 1,400% |
| Tyler Technologies Inc. | TYL, -1.94% | 3.6% | 30% | 90% | 253% | 1,483% |
| Ansys Inc. | ANSS, -1.26% | 3.5% | 17% | 99% | 127% | 297% |
| Tencent Holdings Ltd. ADR | TCEHY, -4.01% | 3.5% | 0% | 162% | 634% | N/A |
| Sources: Plumb Funds, FactSet | ||||||