Quick Take: After finishing in the red in its first two full years of operation, Turner New Enterprise (TBTBX) has rebounded lately.
The $16.8 million fund, which lost 38.4% in 2001 and 47.2% in 2002, is up 91.9% so far this year. Its return through the end of October put it comfortably ahead of the Standard & Poor’s 500-stock index, which had risen 20.8%.
What’s different this year?
Chris McHugh, the lead portfolio manager of the fund, says the growth stocks that Turner New Enterprise prefers have returned to favor with investors. The recent rally by small-cap stocks has also helped, he says. The fund can buy any size company, but it’s biased towards those with market caps of $500 million to $10 billion, McHugh points out.
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In picking stocks, McHugh and his team look for industry-leading companies with increasing profits and revenues, and for which analysts are raising earnings estimates.
McHugh also helps run Turner Midcap Growth/I (TMGFX), which uses the same investment strategy as New Enterprise, but which focuses on larger companies.
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Like their colleagues at Turner Investment Partners, the managers of the firm’s New Enterprise fund believe that earnings expectations drive stock prices, says Chris McHugh, who leads the team that runs the portfolio.
The fund’s trio of stock pickers scans for companies for which analysts are ratcheting up estimates, and that meet or beat those projections. They like to see increasing profits and sales, too, although they have no hard and fast growth targets.
More important, the managers prize companies that hold the No. 1 or No. 2 position in their industry or niche. “If you’re executing in a downturn and you can gain that market leader position, it’s only going to help you exponentially when the market comes back,” says McHugh.
Turner New Enterprise can buy companies of any size, but it leans towards those with market caps of about $500 million to $10 billion because, McHugh says, they tend to grow their top and bottom lines faster than big companies.
Only 30-40 stocks make it into the portfolio. This concentration makes it easier to follow companies, McHugh says. He adds that Turner Investment Partners Inc., the investment adviser to the Turner Funds, doesn’t see many focused funds that play in the small-to-mid-cap arena, and thinks “that’s an area that we can take advantage of.”