Worried about client returns as we head toward another possible downturn? Want to find an undiscovered or overlooked manager to get in with early? Here are a few flying below the radar (for now). They have solid performance with relatively low assets under management--which equals opportunity for you and your clients. Look for more overlooked mangers each month in Investment Advisor magazine.
1). Janus Triton Fund (JGMAX)
We know what you're thinking--how could any Janus fund possibly qualify as "overlooked?" The Denver-based fund manager gets more ink than Lindsay Lohan--good and bad. But the Janus Triton Fund's one year return is 22.46%, its five year return is 7.74% and it's returned 7.52% since inception, all with only $617 million in AUM.
"We use the same in-depth fundamental research process that Janus is known for, but we apply it to smaller cap companies that we believe have the opportunity to mature into the mid-cap space over time," says Brian Schaub, who co-managers the portfolio with Chad Meade. "What differentiates us from a traditional small cap offering is that we're able to capture that entire return as the company migrates from a small cap to a mid-cap."
2). Sierra Core Retirement Fund (SIRAX)
David Wright and Kenneth Sleeper, co-founders and managers of Sierra Investment Management, understand that the nature of the risks inherent in every asset class is far more important to portfolio management than trying to opportunistically grab the possible returns they offer. Different asset classes behave in different ways at different times, and the duo--who have been managing money in separate accounts for close to 23 years and launched the Core Fund in 2007--spends two- thirds of their analytical time studying risk just so that they can understand these peculiarities. They look to measure how a particular asset class has reacted over time to different market conditions and how it will perform, in light of this, going forward. They follow this diligent risk management practice, Wright says, so that they can come up with their own proprietary disciplines that will then enable them to meet their dual goal of limiting the downside on the $370 million Core Fund by exiting problem areas before they sink, and delivering realistic, consistent returns to investors by taking advantage of any sustained upward movement in a given asset class.
"Even in a very ugly month or quarter," Wright says, "we want to limit the downside of the portfolio to 4% or 5% and our goal is to average 8% or 10% over a market cycle."
3). Capital Advisors Growth Fund (CIAOX)
The defensively managed Capital Advisors Growth Fund outperformed the S&P 500 by 12.82% for the last bear market period from October 9, 2007 to March 9, 2009. Morningstar ranks the fund in the top 20% of all equity funds for its performance during bear market months over the last five years ending May 31, 2010. Morningstar credits the fund with low risk and above average returns for the three- and-five year-periods ending May 31. Lipper rates the fund a "5" (best measure) in its category for Capital Preservation.
How do co-managers Keith Goddard and Channing Smith get these results? They focus on high-quality blue chip companies that are undervalued, financially stable and exhibit shareholder-friendly activities such as dividends, share buybacks and accretive acquisitions
4). Mirzam Capital Appreciation Fund (MIRZX)
lbert Meyer, president and manager of the $8.9 million Mirzam Capital Appreciation Fund, understands stock options and why companies give them to their senior executives, but he still despises them. Although Meyer knows that the use of incentive options cannot be completely avoided, he's made it his goal as MCAF's manager to only invest in those companies where stock options are minimal.
Even if a company fits every other item on Mirzam's list of investment criteria; even if it is a proven leader in its industry sector. Still, Meyer will not consider it for MCAF if it has a stock option overhang of more than 5%. A tough course to take, he admits, since there are so many great companies out there that don't meet that standard, but ultimately, one that pays off, because Meyer is a firm believer that all stock options do at the end of the day is bleed a company and put wealth that should go to shareholders into the hands of its executives.
"Some people think that we're investing in obscure companies because of the approach we follow," Meyer says, "but there is nothing obscure about the companies we own."
On the contrary, since some of MCAF's biggest holdings are top-performing global players like steel giant Arcelor Mittal, Colgate-Palmolive, and Norwegian oil concern Stat Oil. The fund has invested in companies like China Mobile and Israel's Teva Pharmaceuticals, strong players with solid cashflows and great business potential, and it likes companies like Church & Dwight, Clorox, and Paychex (whose CEO, Meyer says, is paid less than his competitor yet "does better"), but it has also rejected names like General Mills, Dell, and Moody's Investors Service, which despite their strong market positions, "are bad companies for shareholders" because they fork over far too many stock options to their executives.
"We are invested in companies that are large and own their markets and don't pay stomach-churning compensations," Meyer says.
5). Encompass Fund (ENCPX)
Starting life as financial planners, Marshall Berol and Malcolm Gissen turned their investing acumen into the world-beating, go-anywhere Encompass mutual fund. The two men--who are both RIAs with over 28 years of investment experience each and who launched the Encompass Fund in 2006--look to invest exclusively in relatively unknown and undervalued companies that have the potential for great returns somewhere down the line, regardless of the companies' size or geographic location.
It is a strategy that they use to manage around $190 million in separate accounts for individual investors and one that has paid off more than handsomely for Berol, Gissen, and their shareholders. In 2009, the Encompass Fund had a stunning total return of 137% and ranked first in Morningstar's World Stock Fund category. The fund also outperformed its Morningstar benchmark by 106% and its entire category by over 100%, and had returned 92% for the 12 months ending March 31, 2010.
"Unlike other funds, we are not constrained to investing in only large cap or small cap or technology or any other single category," Gissen says. "We are set up so that we can invest in any kind of company, in any sector and in any country. We are focused on capital appreciation so we look for companies whose share values are undervalued but will grow over time."
6). FPA Crescent Fund (FPACX)
Morningstar gives it five stars and makes it a "featured fund" this month. Its objective is to provide, through a combination of income and capital appreciation, a total return consistent with reasonable investment risk. Not exactly breaking the mold, but whatever they're doing, it's working. One year total return is 11.75%, five year return is 4.92% and 10 year return comes in at 11.07%. Returns like that are one reason Monrningstar notes, "Market uncertainty hasn't fazed this fund." Ya think?
"We believe that by having a mandate that allows us to move across asset classes, market caps, and sectors, and to hold cash when others cannot or will not, our investor base is better positioned to avoid the discomfort that might lead to an inopportune sell decision," says First Pacific Advisors President Steven Romick. "Crescent has had more than one-third less volatility and about half the downside of the stock market as a result of the Fund's flexibility and execution of its mandate."