Stephen Lieber, lead portfolio manager of the
Alpine Dynamic Innovators Fund (ADINX), said he is starting 2008 with a portfolio positioned to be nimble by allocating nearly half the $68 million fund to cash.
"My job is to spot the opportunities when they're handed to me, and a 45% cash position creates great opportunities in a panicky environment," he said.
Some critics might challenge the oversized cash weighting as being the opposite of what investors are paying for in an actively managed mutual fund. But Mr. Lieber's ready response to such skeptics boils down to the undisputable reality of performance.
The fund, which was launched in July 2006 and is a piece of the $2 billion for which he is responsible, holds a staggering performance lead in the small-cap-growth category as measured by Morningstar Inc. of Chicago. Through last Thursday, the fund had a 12-month trailing return of 25%. The category average over the same period was a loss of 6.2%.
The next-closest-performing fund in the category was
Brazos Small Cap (BJSCX), offered by
Brazos Mutual Funds of Milwaukee, which gained 15.1% during the period.
"Our cash would be a problem if we didn't have good returns," Mr. Lieber said. "I'll have a fully invested fund when I find the opportunities, but I'm in no hurry."
The heavy cash weighting says as much about the fund as it does about Mr. Lieber's general outlook for the economy. "Right now, the market is in a panic, and this is forcing a change in economic management," he said. "It's a very critical moment, and one can afford to be patient."
It is safe to say that Mr. Lieber has been through his share of market turmoil.
The chief investment officer of Purchase, N.Y.-based
Alpine Woods Capital Investors LLC founded the
Evergreen Investment Services Inc. group of mutual funds in 1971. That fund group is now part of Charlotte, N.C.-based
Wachovia Corp.
Alpine Woods manages $13 billion through mutual funds, hedge funds and separate-account strategies.
The Dynamic Innovators Fund, Mr. Lieber said, was created to take advantage of a specific aspect of growth companies.
"We were looking, in terms of strategies, for something that could universally provide exceptional returns," he said. "Most growth funds don't focus on the development of innovation, but this fund does nothing but focus on innovative strategies or products, or both."
Mr. Lieber's research, which includes the support of 11 analysts and portfolio managers, isn't very different from how he did things back in the 1970s with the fledgling Evergreen funds. "We read a lot of trade magazines, and we read the annual reports, to get a sense of what's going on," he said. "It's a little old-fashioned, but it works."
Mr. Lieber also thinks that face time with corporate executives is important.
"We call it 'applied sociology,'" he said. "You look at the [company executive] to figure out what he's doing and how he's exploiting opportunities — but you have to look at him to figure that out."
This kind of bottom-up research has uncovered a range of investment opportunities, both big and small.
A study showing the lower labor costs associated with welding manufacturing, for example, led to an investment in
Dynamic Materials Corp. (BOOM).
The Boulder, Colo.-based company specializes in a range of welding services. The company's stock, which closed Friday at $45.82, was up 70.9% over the previous 12 months.
The Standard & Poor's 500 stock index, meanwhile, was down 7.2%.
The fund includes 70 stocks, and the portfolio is allocated with little regard to either market capitalization or sector weightings, according to Mr. Lieber. He admitted a current leaning toward medical technology "because there is a lot going on there."
One of the larger positions in the fund is
Intuitive Surgical Inc. (ISRG), a Sunnyvale, Calif.-based designer and manufacturer of robotic surgical devices. Intuitive Surgical shares closed Friday at $262.07, up 180.1% over the previous 12 months.
"This company has a marvelous and innovative approach," Mr. Lieber said. "We're finding many things in the overall health sector, and that's where the money is going,"
Just as some of Mr. Lieber's stocks are off the beaten path, others are right in your face, such as
Merck & Co. Inc. (MRK). The Whitehouse Station, N.J.-based company is the largest one in the fund, with a $120 billion market cap. Merck's stock closed Friday at $53.32, up 20.1% over the previous 12 months.
The innovative appeal, Mr. Lieber said, is the company's specific pharmaceutical research.
Questions, observations, stock tips? E-mail Jeff Benjamin at [email protected].
