This fund is unlikely to replicate last year's outsized gains
in the near term, but prospective investors shouldn't discount
this savvy manager's ability to identify and profit from
undervalued stocks--especially over the long haul.
Given the vicissitudes of the last few years, it's no surprise
that some investors might emerge from their shell-shock with warped
sensibilities; the irrational exuberance that characterizes extreme
market movements--whether to the upside or downside--often causes
investors to lose sight of fundamentals.
For mutual fund investors, danger lurks in chasing near-term
returns. Over the past two years, the ebb and flow of the
proverbial tide has alternately grounded and raised all ships. But
a fund that did well during broader market rallies or downturns
won't necessarily outperform when stock selection again separates
the losers from the winners.
Neuberger Berman Partners
(NPRTX) suffered a staggering 52 percent loss in 2008 and posted a
56.1 percent gain the following year, manager S. Basu Mullick's
commitment to value investing should continue to pay off in the new
It's hard to argue with management's strategy of investing in
well-managed companies that boast strong balance sheets and
significant competitive advantages--especially when the firms'
shares trade at historically low valuations or fail to reflect
long-term growth prospects. Accordingly, Mullick avoids stocks
whose price-to-earnings ratios exceed the industry average and
often holds positions as long as they offer long-term upside.
Over the past two years, Mullick's bullish stance on energy and
materials has been both a blessing and a curse, though these
investments should reward the fund over the long haul.
The thesis is simple: As urbanization and economic growth in
emerging markets increases demand for vital resources, companies
leveraged to these structural trends will reap the benefits. At the
end of 2009, materials names accounted for 21 percent of the fund's
investable assets, while energy stocks represented 18 percent of
In particular, Mullick favors companies that offer exposure to
the next frontiers of oil exploration and production--for example,
Brazilian energy giant Petrobras (
), which boasts huge reserves and extensive experience operating
deepwater fields, and Canadian Natural Resources (
), which continues to ramp up its oil sands operations and plans to
expand production through a slate of heavy oil projects. Offshore
driller Noble Corp (
) trades at historically low valuations and likewise offers
exposure to this trend. As the hunt for new oil supply shifts to
hard-to-produce reserves, these names should benefit.
On the materials side, Mullick remains a believer in TECK
), a Canadian mining outfit that produces copper, lead, zinc and
metallurgical coal. A position in Freeport-McMoran Copper &
), the world's largest publicly traded copper miner, has also done
Although financial services names have rallied somewhat from the
lows of March 2008, valuations remain undemanding thanks to
regulatory uncertainties and credit quality issues. That being
said, normalized earnings for the nation's largest financial
institutions are a tantalizing prospect; by Mullick's estimation,
this downtrodden group offers considerable opportunity. Bank of
America (BAC) remains the fund's biggest position, while JP Morgan
Chase (JPM) and Wells Fargo & Company (WFC) also appear in the
portfolio. Mullick also likes asset management firm Invesco (IVZ),
which stands to benefit from its acquisition of Morgan Stanley's
(MS) retail fund operations.
Taken together, financial services, energy and materials
positions account for 62 percent of the fund's investable assets.
Prospective investors should be aware that Mullick's propensity for
sector concentration can lead to near-term volatility. That being
said, management's value-oriented approach to stock selection and
strong selling discipline provide a degree of downside protection
under normal circumstances.
And Mullick's bets outside of the fund's three biggest sectors
demonstrate his commitment to uncovering value in all corners of
the market. Retailers Macy's (M) and J.C. Penney
(JCP) face near-term challenges from weaker consumer spending
but will survive and should benefit from consolidation within the
industry. Meanwhile, credit rating firm Moody's Corp (MCO) and
financial market and educational publishing giant McGraw-Hill
Companies (MHP), which owns Standard & Poor's, boast
industry-leading positions and their credit ratings services
underpin key financial regulations.
With a focus on buying undervalued stocks that offer attractive
long-term growth prospects, Neuberger Berman Partners is a solid
choice for younger investors.
Article Republished with permission from <a href="http://www.KCIinvesting.com" rel="nofollow">www.KCIinvesting.com</a> and <a href="http://www.rukeyser.com" rel="nofollow">www.rukeyser.com</a>