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Bob Fetch and Howard Hansen of Lord Abbett All Value Fund

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Quick Take: Lord Abbett All Value Fund/A (LDFVX), a multi-cap portfolio, is designed to be a core product generating returns across the market capitalization spectrum. Bob Fetch is one of the fund’s six managers along with Howard Hansen. The team follows a classic value strategy, investing in underpriced stocks poised to gain because of a catalyst.

The fund maintains a large-cap bias, although it seeks value opportunities across all market capitalizations. The multi-cap emphasis, along with a generally diversified approach, has resulted in below average volatility. The portfolio’s three-year standard deviation compares favorably with that of the S&P 500/Barra Value Index, 14.37% versus 18.09%.

The wide ranging approach has opened up opportunities that a single market cap emphasis might not permit, the managers point out. For example, because large-cap stocks in health care are generally in pharmaceuticals, Hansen notes a large-cap approach would have missed non-pharma opportunities in the small- and mid-cap areas.

Fetch says the approach is key to the fund’s long-term performance. For the five-year period through last month, the portfolio rose 5.6%, on average, versus a 0.5% gain for the S&P 500 Barra Value Index. For the one-year period through May, the fund was up 20.7%, compared with a 20.5% gain for the index.

The Full Interview:

S&P: What is your investment philosophy?

FETCH: We look for undervalued opportunities that result from mispricings in the market. Then we research the fundamentals of these stocks to identify catalysts that will draw investor interest. As an all-value fund, we look for opportunities across all segments of the market.

S&P: Why do you consider stocks across all market-cap segments?

HANSEN: We believe it gives us greater flexibility in terms of industries. In health care for example, pharmaceuticals are the predominant in large-cap stocks, but there are other areas of health care in small- and mid-cap stocks.

FETCH: We feel we have a high-quality fishing pool. This product was meant to appeal to a wide range of investors — it wasn’t meant to hit home runs with large bets on mid- and small companies.

S&P: What is the fund’s allocation in terms of market capitalizations?

FETCH: As of June 14, stocks with market caps greater than $9.5 billion were 63% of the portfolio, stocks with market caps between $5 billion and $9.5 billion were 11%, stocks with market caps between $2 billion and $5 billion were 13%, and stocks under $2 billion were 12%.

Generally, most of the fund is in large-cap stocks but we’ve owned many small- and mid-cap stocks due to a huge valuation gap in those issues in 2000.

S&P: How do you decide which market-cap areas to focus on?

FETCH: Our process is bottom-up, and our ideas come from our three product teams in the large-, mid-, and small-cap areas.

S&P: What investment themes is the fund emphasizing?

FETCH: For the last few years, we’ve focused on more economically sensitive stocks in the industrial, consumer durable, and technology areas, while underweighting more classic defensive stocks in the consumer staples and utilities areas.

As of last Friday, our health-care weighting was 8.9%. Our holdings include Caremark Rx (CMX), Boston Scientific (BSX), St. Jude Medical (STJ), and Bausch & Lomb (BOL). In the small-cap area, we’ve also gained with Sierra Health Services (SIE), and Manor Care (HCR).

S&P: Why is the fund less volatile than its peers, based on three-year standard deviation:

FETCH: Diversification in holdings has helped to lower our standard deviation. All our eggs aren’t in a few baskets.

S&P: What are the fund’s top holdings?

FETCH: Exxon Mobil (XOM), Deere & Co. (DE), Verizon Communications (VZ), Citigroup Inc. (C), Walt Disney Co. (DIS), Apple Computer (AAPL), Motorola, Inc. (MOT), and General Electric (GE).

S&P: Are there any new stocks among your top holdings?

FETCH: General Electric is a new holdings in the last couple of months. It has come through a couple of tough years as it has changed its business mix to focus more on health care and other faster growing areas. Some of its operations, such as engines and commercial aerospace, are getting better after some significant downturns.

S&P: To what do you attribute the fund’s strong performance?

FETCH: Most of our incremental performance has come from across the board. We also did well by underweighting technology when it did poorly, and by overweighting materials when it did nicely.

Contact Robert F. Keane with questions or comments at:

[email protected].


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