The time is right for higher quality companies to start leading the stock market rally, according to Steven Pollack, manager of the Robeco Boston Partners Mid Cap Value Fund (BPMIX).
“Low quality companies got very cheap a year ago,” he said. “But at this point higher quality names should start to benefit and that would play right into our wheelhouse.”
That “wheelhouse” starts with a quantitative research process that is followed by much deeper fundamental analysis of stock valuation, business fundamentals and catalysts for change.
The strategy proved its effectiveness last year when the mutual fund gained 42.2%, which compares to a 34.2% gain by the Russell Mid Cap Value Index.
Even though the fund's performance slightly trailed its benchmark in the second and third quarters — and slightly outperformed the index in the fourth quarter — the performance gap was established in the first quarter.
During that tumultuous first three months of 2009, Mr. Pollack's strategy beat the index by seven percentage points by having avoided the most troubling sectors — especially banks.
In the first quarter of last yea,r the fund declined by 7.3%, while the index dropped by 14.7%.
“Our general focus on quality really paid off,” said Mr. Pollack, who manages a total of $200 million in the mid-cap value strategy for the Boston Partners unit of Robeco Investment Management.
Robeco has $10 billion in total assets under management.
At this point, Mr. Pollack is positioning the portfolio to take advantage of an ongoing economic recovery.
He declined to discuss specific stock holdings, but said he has been allocating assets to employee staffing businesses since the middle of last year.
“It's still the early innings, but the story there is that these kinds of companies would see a pick-up in business as the economy picks up,” he said.
Another area he currently likes is grocery store chains.
“These are good but not great companies, but they are vey inexpensive,” he said. “These are the kinds of companies that haven't really participated in the stock market rally.”
Grocery store company stocks have been hurt, he explained, by food price deflation and a recent price war, but he expects them to do well as the consumer starts spending more money over the next several months.
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 .
