Quick Take: Scott Brayman, lead manager of the Sentinel:Small Company Fund/A (SAGWX), has an office in Montpelier, Vt., certainly a more tranquil setting than Wall Street. That may give him a psychological edge over his more pressured fellow stock pickers in New York, he says.
The fund’s returns have given it an edge over its peers. Sentinel Small Company, which Brayman has piloted since 1996, rose 16.7% this year through June, versus 16.3% for the average small-cap blend fund. For the five years ended last month, the fund gained an average annualized 11%, versus just 2.6% for its peers.
In choosing investments, Brayman looks for undervalued stocks of companies with strong returns on capital. He focuses on those with market caps of $500 million to $1.5 billion.
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There are plenty of talented people in the investment business, and what differentiates them is probably very subtle and intangible, says Scott Brayman, who runs the Sentinel Small Company fund. That he works in the Green Hills of Vermont and not the concrete canyons of Manhattan may give him a leg up on other money managers, he suggests.
“I don’t have any hassles commuting,” says Brayman, noting that there are no traffic lights between his home and his office. “I mean, that’s got to give me an advantage in terms of my state of mind.”
In picking stocks, Brayman looks for companies with a competitive advantage, like a patent, as well as those whose earnings top their peers. Before he scans for these characteristics, however, he wants to find businesses that feature fat returns on capital; strong cash flow and balance sheets; high margins; and low debt.
Brayman wants to buy stocks when they’re selling at a discount to what he thinks a company is actually worth. That gives him a shot at profiting when investors bid the shares up, or if the company is acquired, he says.
A stock that Brayman added to his portfolio late in the second quarter this year is Investors Finl Svcs (IFIN), which provides securities processing and other administrative financial services. The company is “a terrific grower” of earnings and revenues, and stands to benefit as businesses increasingly contract out their back office work, says Brayman. His average cost in the stock is about $27.50. It closed today at $31.22.
In the previous quarter, Brayman bought a stake in La-Z Boy (LZB) because he thought the furniture maker’s stock was attractively priced. His shares cost about $18.20 on average. They closed today at $22.78.