TIP SHEET: Defensive Approach Works For Perkins Global Value Fund
First Published Tuesday, 29th May 2012 11:50 am - © 2012 Dow Jones
(This article was originally published Friday.)
--Perkins Global Value Fund considers stocks' potential for losses before examining upside
--Strategy reduces fund's volatility when global markets swing wildly
--Fund finding picks in global consumer staples, including PepsiCo, Nestle and Unilever
By Paul Ziobro
Of Dow Jones NEWSWIRES
NEW YORK -(Dow Jones)- Fund manager Gregory Kolb thinks the pullback in the broader markets after a prolonged but choppy climb plays well into the hands of his Perkins Global Value Fund (JGVAX).
Kolb takes a defensive-minded approach to the roughly $120 million fund, considering first a stock's potential for losses before weighing the upside. The fund focuses on stocks that have fallen out of favor, but still have strong balance sheets and cash flows, as well as solid competitive positions that can withstand challenges.
Kolb contends these criteria single out companies that can outperform when broader markets swoon -- which is especially relevant given recent uncertainty surrounding the euro zone and the global economy.
"The basic characteristic of markets is that they swing between fear, greed, and back again," Kolb says. "I would fully expect, at some point, for the markets to be less-optimistically priced than they are today."
The strategy has landed companies like health-care-products heavyweight Johnson & Johnson (JNJ), wireless telecommunications carrier Vodafone Group PLC (VOD.LN) and food-and-drink bellwether PepsiCo Inc. (PEP) in the fund's portfolio.
Todd Rosenbluth, mutual fund analyst for S&P Capital IQ, says that the fund's defensive characteristics help smooth performance over time, and that its low volatility could be something mutual-fund investors should consider in the coming months.
"As we've seen in May, stocks will go up, not just down," Rosenbluth says. "This is a fund that can withstand some of the economic pressures we see in the marketplace."
The strategy has kept the fund ahead of other global funds that have been dealing with choppy markets. In the year through Thursday, the fund is up 0.9%, according to Morningstar. By comparison, the MSCI World Index, against which Kolb benchmarks the fund, has risen 1.9% over the same period. The Perkins Global Value Fund has delivered annualized returns of 11.8% over the past three years, outpacing the benchmark's returns of 10.5%.
The Perkins Global Value Fund is currently overweight in health care, telecommunications and consumer staples, and underweight on materials, financial and industrial companies. Besides PepsiCo, other consumer staples stocks the fund owns are Nestle SA (NESN.VX, NSRGY) and Unilever NV (UN). Kolb notes that all of those also give the fund exposure to emerging economies.
The fund hopes to find bargains in the Japanese market, which has struggled for the last two decades. Kolb sees value there in companies that have a lot of cash on their balance sheets yet still trade at low multiples. Among its somewhat obscure holdings in Japan are Hirose Electric Co. (6806.TO), a global supplier of electrical connectors, and As One Corp. (7476.TO), a distributor of products like test tubes used in laboratories.
The fund currently owns around 90 stocks, within its targeted range of 70 to 100 names. It's carrying a higher cash balance than usual--15% of its portfolio is in cash, versus the 3% it had in March 2009--as the fund's fierce aversion to risk has left it on the sidelines. Kolb says that these days there are fewer quality companies with stocks cheap enough to enter.
"We find some things we like, but the risk-rewards aren't as good as they were," Kolb says. "A couple years ago, there was more fear in the stocks."
(Paul Ziobro covers consumer-product companies for Dow Jones Newswires. He can be reached at 212-416-2194 or by email at email@example.com; Twitter: @pziobro.)
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