Q&A With Nick Thakore, Putnam Voyager fund manager

Nick Thakore

BOSTON -- It's important to assess a mutual fund's performance over at least a three-year period before you invest. Anything shorter and you're likely chasing recent returns, rather than choosing a fund with staying power.

Still, funds with strong long-term records can endure slumps that stretch for years, and eventually bounce back.

That was the case when Nick Thakore became the manager of Putnam Voyager in November 2008. He hasn't been at the helm a full three years, but he's led a dramatic turnaround.

On Thursday, Lipper Inc. honored Voyager for posting the top three-year record among funds that specialize in buying large-cap growth stocks. The award is based on returns, as well as the level of risk Thakore took to achieve them.

Voyager (PVOYX) has rewarded investors with an average annualized return of 13.3 percent. That's 10 percentage points above the large-growth fund average. One reason: Its top holding is Apple Inc., whose shares have quadrupled in value since the March 2009 market bottom.

The question now is whether Thakore, can continue beating a rising stock market that he figures has plenty of room to climb, even after nearly doubling over two years.

Plenty of investors seem to believe in the 43-year-old, who came to Boston-based Putnam after managing funds at larger cross-town rival Fidelity, and a more recent stint at RiverSource Investments.

At $5.1 billion in assets, Voyager is a pipsqueak compared with the $46 billion behemoth it was at its peak 11 years ago. Voyager surged in the late 1990s, driven by enor-mous gains for technology stocks.

When the tech bubble burst, Voyager went "poof" as well. To make matters worse, Voyager missed the boat when stocks turned around in 2003. That was the first of five years in a row that the fund was beaten by a majority of its peers.

Thakore is confident investors can still expect more gains two years into this bull market. Here are excerpts from a interview last week:

Q: What are the key reasons you think stocks will keep rising?

A: One is simple: earnings. The stock market is all about what companies earn, and what you pay for those earnings. Earnings are headed to an all-time record, and the market is nowhere near its record (The Standard & Poor's 500 is around 1,300 points, 17 percent below its historic peak in October 2007).

Then there's the fact that stock prices are cheap measured against earnings. In times like this, with low interest rates and inflation, when the S&P 500 has traded at a historical average of about 17 times expected earnings.

It's expected that earnings per share for S&P 500 stocks will approach $100 this year. So if the index were at just 15 times earnings now, the S&P 500 should be at 1,500. I'm not making a prediction it will reach that level, but it's a rational number, and suggests there is still a lot of money to be made.

Q: What's holding the market back?

A: People have had a hard time embracing being bullish. First, they lost their shirts last decade. The trailing 10-year return of the stock market in 2009 was the worst in 175 years. So, naturally, that leads to defensive thoughts.

Everyone is aware of the debt challenges the government faces. And people look around, and say, "Well, unemployment is high, growth is slow, why would I be bullish?" Focusing on those areas makes them miss what really matters. And as challenged as the consumer and government are, the story of corporate America is spectacular.

Q: What are the biggest threats you see to further market gains?

A: First, oil prices, We've got a developing economic recovery, and the biggest thing that could trip it up is a sustained spike in oil prices. I think prices would have to go quite a bit higher and stay there a long time to cause a big problem.

I also worry about government debt in the U.S. and in Europe. The European situation is touch-and-go, but I think they'll probably come out of it. As for the U.S., I don't think that the deficit is likely to become a big problem while interest rates stay low. You have to worry more when rates really rise fast. I don't think we're getting to that point yet.

Q: Apple's stock has risen so sharply (to about $345) that investors may be contemplating selling. Yet it remains your fund's top holding, at around 5 percent. What's your take on Apple?

A: I love Apple, but I don't think it's as exciting as it was when I was buying it at around $80 in January 2009. Being value-conscious, I want to be skeptical about Apple, because it's now got the second-largest market cap in the world (behind Exxon Mobil).

But Apple's earnings have grown so fast that its stock has actually gotten cheaper, relative to earnings expectations.

If Apple had just been an iPhone story recently, I think the stock price might be at a point where I'd consider selling it. But I believe the iPad has both increased and extended their growth rate. Apple fits my idea of a good growth story, but at an attractive valuation.

Q: Your fund holds far more financial stocks than a typical large-cap growth fund. Why?

A: Financials will have some of the highest earnings growth rates over the next couple years. Do I think financials are an exciting 10-year growth story? No. But all the major issues with banks out there will seem better a year from now: from loan growth, to net interest margins, to the problems with mortgage foreclosures and paperwork.

These stocks are underowned. When you put it all together, I think it's a pretty compelling combination.

Fund runner

NAME: Nick Thakore.

TITLE: Manager, Putnam Voyager Fund, since November 2008; head of U.S. Equities Investment Management, Putnam Investments.

AGE: 43.

EDUCATION: University of Michigan, bachelor's in business administration; University of Pennsylvania, Wharton School, master's in business administration.

CAREER: Financial analyst and assistant portfolio manager, Fidelity Investments, 1993-98; portfolio manager, 1998-2000, Fidelity Trend Fund; portfolio manager, Fidelity Fund, 2000-02; portfolio manager, RiverSource Growth Fund, 2002-08.

FYI: Thakore got started in investing at around age 15, buying stocks using a small account his father set up. "My cousin and I were such nerds about it. We read Barron's magazine, and used to handwrite all these numbers down, and create trading systems. The first stock I bought was a (now-defunct) waste management company called Browning-Ferris Industries. I made money on it, and I thought it was really easy. Then I made a lot of mistakes. But the interest was there from an early age."