March 29, 2012

Is Delaware Funds’ Ericksen the Next ‘Star’ Manager?

The mighty fall as Ericksen rises, as least according to returns

Is Morningstar’s “Manager of the Decade” tag actually the kiss of death? Bruce Berkowitz is still wrapped in a real estate scandal; Bill Gross underperformed 96% of peers on a blown call about Treasuries; and Bill Miller (never named manager of the decade, but no less legendary for it) … well, do we really have to go there?

Christopher EricksenThe time is right for the emergence of a new star manager, and it could very well be Delaware Select Growth Fund’s (VAGGX) manager Christopher Ericksen (left). Although the overall fund is managed by Jeff Van Harte, it’s apportioned in “sleeves," and Ericksen’s portion of the domestic stock fund has people’s attention.

With only $742 million in assets, the time is right to get in.

“Delaware Select Growth has potential for investors willing to stay for the long haul,” writes Morningstar analyst Janet Yang in a report provided to AdvisorOne. “Jeffrey Van Harte and his growth team manage this fund as a group, with each of the eight co-managers managing a separate sleeve of the portfolio. They take a long-term view to stock-picking that focuses on companies with sustainable advantages, consistent growth and strong cash flows. They also like to see companies going through fundamental changes at the industry, product or management levels.”

The team has delivered strong returns since taking over in 2005, she adds. From 2005 through the end of February 2011, the fund's 9.7% gain has outpaced both the category average's 7.4% and the Russell 3000 Growth Index's 6.4%. Over the past five years, the fund has outperformed two-thirds of its peers.

Van Harte came from Transamerica and brought his team with him. They all apply the same basic strategy at Delaware that they did at Transamerica, except that this is an all-cap fund where each manager picks stocks for a sleeve of the portfolio, according to Morningstar’s Yang. They look for stocks meeting three basic criteria: a fundamental change that will lead to higher growth, a good business model that will allow the firm to generate cash and increase the value of its business, and a reasonable valuation.

“We don’t have Bill Gross’s piercing clarity on the macro situation,” Ericksen told Bloomberg recently. “For us, what matters is getting the business right.”

Stocks contributing to Ericksen’s success include Apple (no surprise), MasterCard and online education company K12, proving the education bubble might not be ready to pop just yet.

“In all, investors properly braced for a bumpy ride should consider this fund,” Yang concludes, which, given recent volatility, includes pretty much everyone.

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Floating Over Volatility, October 2011, Investment Advisor(For more information on Delaware Funds, see “Floating Over Volatility” from the October 2011 issue of Investment Advisor magazine.)

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