From the March 2011 issue of Investment Advisor • Subscribe!

March 1, 2011

Jerry Jordan's Napoleon Complex

The Jordan Opportunity Fund isn’t just small, it’s really small. But its performance suggests getting in while the getting is good

“It’s hard to get big when you’re small, because nobody wants to invest with somebody who’s small,” says Jerry Jordan, portfolio manager of the Jordan Opportunity Fund, when asked about his status as an overlooked manager.

Small may not be the right term. With only $110 million in assets under management, microscopic better describes it—at least in the mutual fund world. But with a five-star overall rating from Morningstar out of 1,504 funds in his peer group, and impressive one-, five- and 10-year returns, Boston-based Jordan is the very definition of an overlooked manager.

“This is very much a consultant-driven industry,” he adds. “As a way to justify what they’re doing, [consultants] are very style box-oriented. We’re not style box-oriented. It allows for a lot more freedom of movement.”

The fund is managed with a top-down strategy, based on four to six themes Jordan and his team think will happen in the equity investing world over a 12- to 36-month time horizon. When asked about the themes he’s seeing now, Jordan provided so much detail it was immediately apparent that he’s an expert in the sector or business in which he invests before ever making a move. In fact, so much detail was given about his process and style that it’s doubtful transparency will ever be an issue when investors finally arrive.

“We’re very bullish on food and everything that goes with that. That means John Deere, Archer Daniels Midland, fertilizer companies, nitrogen companies. We think food and food prices are where aggregate global energy prices were seven years ago. And it’s going to take the world another four to seven years to sort out our food supply issues.”

Every year, he says, we’re adding another 50 million mouths to feed, and more specifically middle class mouths to feed, which is important.

“The indigent people don’t eat a lot and they tend to be subsistence farmers. When you move to the middle class you no longer live on a farm, and you need somebody else to provide you with food. You’re more likely to have more disposable income to spend on things like meat. So if you want to eat a little more chicken than you used to, if you want to have a steak twice a year, those things are much more grain intensive. Eight units of grain are required to grow one unit of beef. So what we’re talking about is 600 to 800 million people who have moved into the middle class in emerging markets over the past 10 years. And they’re most likely not going back.”

Media is another trend on which he is particularly bullish; video content in particular. He believes video content people have been given “short shrift” over the last decade; some of it from the stock market, some of it self-induced by those who thought underpriced and free content was the model of the future.

“I think they’re figuring out that that’s not going to work,” he says. “They’re starting to tighten the screws. You’ve had Fox go after a couple of different cable networks and that will continue. Disney with ABC has done the same thing. Everyone’s going after cable companies in New York and that will continue. As a result, you’re going to see the cost of acquiring content continue to rise.”

But Jordan notes he doesn’t believe the cost of producing content is going to grow any faster than it has in the last decade, so there should be a higher multiple that comes with this consolidation.

“Branded products are key in all this,” he advises. “Bloggers aren’t going to take over for the New York Times. The homemade video on YouTube is great, but it’s not ‘American Idol,’ or the next ‘Batman’ movie. Those big companies are still going to garner their pound of flesh. And I think these stocks [of] companies like Disney, Viacom, News Corp.; these stocks are still very cheap. These companies could still be up another 50% to 100% in the next couple of years.”

Tablet computers are another area of interest. Although the iPad is unquestionably the leader in the space, by June or July consumers will begin to see waves of Android-based tablet PCs, which Jordan says is the biggest thing in computing in a decade, if not longer. He predicts sales of 200,000 and 300,000.

“Many of them will be white box products out of Asia, via China, Vietnam and Thailand. It won’t necessarily be the Motorola Xoom, which was the belle of the ball at the Consumer Electronics show in Las Vegas. Rather, it will be no-name ones that they sell over there for $299 when we’re paying $429 here for something that’s got a brand name on it. The iPod sold 40 million units its first real year out in 2004. The initial estimate was for four million!”

Feeding of this trend is the reason Jordan’s two biggest holdings are Qualcomm and SanDisk. He predicts Qualcomm will garner a majority share of the Android-based tablets sales (70%) and a significant share (35% or 40%) of the overall tablet market. SanDisk, he notes, is one of the dominant flash memory providers that will appear in every tablet. Flash memory will overtake D RAM in computers on a revenue basis sometime in 2012, which he refers to as “a pretty big deal.”

What about the areas he’s shied away from?

“You know, as bullish as I am on food, I’m not at all bullish on oil.”

Raised in Boston, Jordan attended Harvard University, where he received both undergraduate and graduate business degrees. He then worked for Salomon Brothers before joining Hellman Jordon, which was started by his father.

“I came in as an analyst and a portfolio manager and then bought the company five years ago,” he says. “By the first half of 2008, we were the number two fund in the country. But like a lot of people, we took a dirt nap soon after. You could say we lost assets the old fashioned way, meaning they declined in value.”

And, of course, some investors pulled out. But recognizing his long-term performance, they’re starting to come back. And he’s even influencing some of the consultants he previously spoke about.

“A lot of consultants are now starting to look at us and say ‘We kind of like the idea of having somebody do what they think is right,’ as opposed to artificially trying to fit themselves into a style box,” he says. “So they’re broadening their boxes. Even if they’re not totally getting rid of them, they’re broadening to the point where a lot of people are looking at us as an all-cap manager.”

Small, but good, hard to define; anything else that separates him from the pack?

“We think that owning a diversified fund is silly,” he says. “If you want to own a diversified fund you should just index. If what you’re looking for is somebody who can add alpha on top of an index holding, that’s where a firm like ours comes in. We find really good investment themes and make a lot of money in them.”

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