Portfolio Manager Perspectives

Jeff Benjamin

Goldman's Rabinowitz: Health care, technology among best small-cap bets

Focuses on 'ideas in areas where companies can gain market share'

Oct 24, 2010 @ 12:01 am

By Jeff Benjamin

Health care, technology and consumer discretionary stocks are producing some of the best investment opportunities in the small- and mid-capitalization areas, according to Jeff Rabinowitz, manager of the $680 million Goldman Sachs Small/Mid Cap Growth Fund (GSMAX).

Mr. Rabinowitz, who has managed the fund since its June 2005 inception, is a bottom-up stock picker with an emphasis on dominant franchises in industries with high barriers to entry. He declined to discuss specific positions in the fund but said that health care, consumer discretionary and technology represent more than half the portfolio.

In the tech sector, for example, Mr. Rabinowitz said that though the newest wave of smart phones and tablet computers are gaining appeal, there are support industries that are also participating in that growth. “The building block components and the infrastructure are often ignored,” he said.

The fund, which has about 90 stocks, is supported by a team of 16 investment professionals who analyze stocks by industry rather than by market capitalization.

“We're focused on looking for ideas in areas where companies can gain market share,” Mr. Rabinowitz said. “We want companies with brand names or patent protection, but we also want the companies to be sustainable.”

The fund's market cap range is between $200 million and $7 billion, but the portfolio's weighted-average market cap hovers around $2.5 billion.

Although mergers-and-acquisitions activity is always a factor when analyzing small-caps, with so many larger companies sitting on record levels of cash, acquisitions have become an even bigger consideration, Mr. Rabinowitz said.

E-mail Jeff Benjamin at -jbenjamin@investmentnews.com.

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