Quick Take: David Katz says he manages the portfolio of the Matrix Advisors Value Fund (MAVFX) as if it were his own money. “A lot of it is,” he says of the $305-million fund.
As an investor, Katz can’t complain about the fund’s performance over the over the long or the short run. Matrix Value rose 44.6% in 2003, versus 21.8% for its large-cap value fund peers, and 28.7% for the Standard & Poor’s 500 index. For the ten years ended in March, Katz’s fund returned 13.5% annualized, versus 10.5% for similar funds, and 11.7% for the index.
More recently, Matrix Value gained 1% in the first quarter of this year, while its peers rose 2.5%, and the index gained 1.7%. Katz says the fund cooled off because its technology and health care stocks weakened, but that he sees good things ahead for both sectors. While the fund has achieved excellent long-term results against its peers with lower than average expenses, volatility is high with the portfolio concentrated in about 35-40 stocks.
Though fund’s board and shareholders approved moving fund into the Strong family of funds last August, the reorganization has been put on hold indefinitely while Katz waits to see what happens with Strong Financial Corp., which is seeking a buyer following its involvement in the scandal over “rapid trading” of mutual funds. Katz, however, will continue managing the fund if it does change hands.
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If you want to know what David Katz is investing in, check to see where Wall Street is directing money. Chances are he’ll be going the other way.
“More often than not, we’re buying when everyone has turned neutral to negative,” on a stock, says Katz, who runs the Matrix Value Fund. “And we’re selling when everybody else has warmed up to a name.”
Katz’s investment approach does involve talking to analysts’ at brokerage houses, but only to get information on companies, not to hear which ones they’re touting or downgrading, he says.
Before consulting people who follow companies, or corporate executives, Katz hunts for undervalued stocks of profitable, financially sound businesses.
He looks at share prices compared to a company’s earnings, sales, book value and dividend yield on an absolute and relative basis, and over the short and long term. He wants equities that are inexpensive based on at least two of those measurements. Companies with little or no debt and strong cash flow pique his interest, too. In addition, Katz keeps an eye out for a catalyst, like a new product, that can drive stocks higher.
Of the 1,500 or so large-cap stocks that Katz initially screens, 35-40 make their way into the portfolio. He feels that number provides adequate diversification.
On the last day of 2003, Katz began buying Genl Mills (GIS). The food producer’s prospects in the long run are bright, according to Katz, who cites its well known brands, such as Cheerios, Wheaties and Betty Crocker. But the stock has suffered for the last 12 months because of investors’ concerns that the popularity of the low carbohydrate Atkins diet would slow its earnings growth, he says.
Matrix Value’s General Mills shares cost $45.43 on average. The stock closed at $46.81 today.
In January Katz bought a stake in MedImmune Inc (MEDI), the first biotechnology stock the fund had ever owned. The stock now ranks fourth in the portfolio.