Portfolio Manager Perspectives

Jeff Benjamin

Not too late to hop on stocks, says RidgeWorth's Sansoterra

Plenty of legs left in equity rally; companies flush with cash

Sep 21, 2012 @ 3:13 pm

By Jeff Benjamin

Investors who continue to pull money out of equity mutual funds are making the mistake of trying to fight the tide, according to Michael Sansoterra, manager of the $300 million RidgeWorth Large Cap Growth Fund Ticker:(STCFX).

“Stocks have been a hated group for a couple of years, but I don't see how you couldn't be looking at equities now,” said Mr. Sansoterra, who manages $1 billion in the large-cap-growth strategy for RidgeWorth Investments, a $47 billion asset management firm.

Even more than three years into the current bull market cycle, coming off the bottom in March 2009, Mr. Sansoterra doesn't understand the steady flows out of equity mutual funds, and he doesn't think it's too late for investors to change course in favor of stocks.

“We got bullish in 2009 because we thought the market had declined so much, and we've been talking about the same issues for some time,” he said. “The expectations have been lowered in the past couple of years, but these companies are more flush with cash and have less debt than at any time in history.”

In managing the portfolio of about 60 stocks, Mr. Sansoterra tries to keep sector weightings close to neutral in a research process that relies mostly on identifying and tracking the key metrics that can make each stock stand out. The factors vary by sector.

Utility companies, for example, will be measured against pricing, subscriber growth, overall demand and the type of demand.

By applying some broad screens to metrics such as size and liquidity, the strategy is able to trim the total universe of potential stocks down to a manageable group of about 500 companies with market caps of at least $3 billion.

One winner the research uncovered is sportswear maker Under Armour Inc. Ticker:(UA).

“They have been expanding their global footprint, and they've been able to charge a premium price,” Mr. Sansoterra said. “Based on the fundamentals, we think Under Armour is still in growth mode.”

The stock has gained 59% from the start of the year, more than double the 26% average gain by comparable clothing manufacturer stocks, and more than three times the 17.9% gain of the S&P 500 over the same period.

One of the factors working in Under Armour's favor, Mr. Sansoterra said, is that its business is largely domestic and has been somewhat shielded from economic slowdowns outside the United States.

The fund is up 18.9% from the start of the year, a full percentage point better than the large-cap-fund category average, according to Morningstar Inc.

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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