Long-short fund favors global companies

The flexibility to invest in companies of any size, anywhere in the world, and to go both long or short on those positions, presents a tremendous opportunity for Paul Sutherland, chief investment officer of Financial and Investment Management Group Ltd.

However, he said, the greatest opportunity is for individuals who invest in mutual funds that already hold positions beaten down by market conditions.

“This is the time to be buying, especially global companies, because there are stocks all over the world that are down 50% right now,” Mr. Sutherland said.

The FIM Group of Traverse City, Mich., which has almost 25 years’ worth of experience managing separate accounts, entered the mutual fund space with its Utopia Funds in January 2006.

The firm has more than $325 million under management, mostly in strategies that put minimal limitations on portfolio managers as long as the companies are run in accordance with a long-term perspective.

“We know people want to support companies that try to help the environment and do responsible things, and I think that will continue to be a trend,” Mr. Sutherland said. “Reputation is everything, and we want to own companies that are thinking about that, because it affects their long-term bottom line.”

The $60 million Utopia Growth Fund (UTGRX) is loaded with such companies and positioned for an economic turnaround, according to Mr. Sutherland.

He attributes part of the fund’s 16% year-to-date decline through Thursday to premature short-position covering, but he maintains a bullish outlook, particularly for companies based outside the United States.

“I think right now is a time to be bullish, and it’s a high-risk time to be short,” Mr. Sutherland said. “If you’re a long-term investor, there are some great companies out there, and you don’t have to own crappy companies.”

The portfolio has 160 positions and includes a 34% weighting in U.S. stocks. The next-largest weightings are Europe at 17% and Singapore at 12%.

There are 10 countries represented in the portfolio as well as a 3.5% allocation to fixed income.

The bottom-up stock-picking process typically begins with a universe of about 50,000 companies.

The idea is to combine fundamental research with macroeconomic themes, while also incorporating certain characteristics of socially conscious investing.

“We try to find really great companies that have great management and great products,” Mr. Sutherland said. “We’re looking for companies that will thrive in how I think the future will be.”

As a general rule, the Utopia portfolios don’t invest in companies that are involved in the production and sale of alcohol or tobacco, but Mr. Sutherland emphasized: “We don’t do screening. We’re not fanatics; we use common sense.”

“If a company happens to own a small division that makes wine, we won’t automatically exclude that company,” he said.

The distinction is significant, because the practice of “ticking off boxes tends to make companies more green-wash-oriented” but not necessarily greener, Mr. Sutherland said.

“We want to be judgment-based, as opposed to rules-based,” he said.

On the macro level, one theme in the portfolio is U.S.-based entertainment-related companies.

“If we stay in a recession, people will go out less, but they will keep their cable on,” Mr. Sutherland said.

With that in mind, he likes New York-based entertainment and media companies CBS Corp. (CBS), Time Warner Inc. (TWX) and Viacom Inc. (VIA-B).

Shares of all three companies have declined to bargain territory, Mr. Sutherland said.

CBS shares closed Friday at $16.82, down 35.9% since the start of the year. Time Warner stock, which closed Friday at $16.04 was down 2% since the start of the year. Viacom shares closed Friday at $29.48, down 32.9% during the same period.

By comparison, the Standard & Poor’s 500 stock index was down 12%.

Also in the category of recession-proof, Mr. Sutherland likes The Knot Inc. (KNOT), a New York-based company that provides multiplatform media services to the wedding and newlywed markets. “People will continue to spend money and obsess over weddings,” he said.

The company, which has a market capitalization of just $300 million, saw its share price decline by 44.2% to $8.90 year-to-date through Friday.

“When the market turns, these are the kind of companies that can double or triple in value,” Mr. Sutherland said.

Questions? Observations? Stock tips? E-mail Jeff Benjamin at [email protected].