Portfolio Manager Perspectives

Jeff Benjamin

‘Oversold’ market superb for stock pickers, says Needham’s Retzler

Small-cap manager is finding great deals in smart-phone technology, data storage and electronic-medical-records industries

Aug 25, 2010 @ 1:13 pm

By Jeff Benjamin

Lower trading volume during the summer doldrums has contributed to an “oversold” stock market, according to Chris Retzler, manager of the Needham Small Cap Growth Fund Ticker:(NESGX).

“Right now with many of the larger investors on vacation, the lower volumes are not confirming any direction in the market,” he said. “It is difficult overall for the small-cap arena, but there are names that provide opportunities in this stock-picker’s market.”

Mr. Retzler, who took over management of the fund three years ago and has more than doubled the assets to $26 million, has identified several broad categories of opportunity.

In order to tap into the popularity of smart-phone technology, he has invested in Anadigics Inc. Ticker:(ANAD) and TriQuint Semiconductor Inc. Ticker:(TQNT).

As part of a data storage theme at the enterprise level, he likes 3PAR Inc. Ticker:(PAR) and Compellent Technologies Inc. Ticker:(CML).

And in the electronic-medical-records sector, he is investing in Allscripts-Misys Healthcare Solutions Inc. Ticker:(MDRX) and Athenahealth Inc. Ticker:(ATHN).

The fund, which has a five-star rating from Morningstar Inc., was up 3.3% year-to-date through Tuesday, ranking it fourth among 758 funds in the category. The S&P 500 was down 6%over the same period.

Part of what helps the fund navigate choppy markets is its ability to hold large amounts of cash and maintain short exposure of up to 20%. The fund currently has a 16% cash weighting and a 5% short position, which is down from a 10% short exposure earlier this summer.

“As a [growth at a reasonable price] investor, the opportunities arise almost every day due to the market volatility,” Mr. Retzler said. “There’s a tremendous amount of fear in this marketplace because people are looking for greater clarity on whether there will be a double dip recession.”

On that note, Mr. Retzler said, the worry is overblown.

“The difference between 2008 and now is that there is more liquidity in the system,” he said. “And we don’t have widespread panic in the market.”

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.

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