Contrarians speak up

Being a contrarian and seeking out companies that other managers ignore could be the key to a successful strategy, said asset managers who spoke at the “Undiscovered Managers” panel yesterday at the Morningstar Inc. conference in Chicago. For instance, while many managers reported staying away from the financial sector, Diane Jaffee, senior portfolio manager at The TCW Group Inc. of Los Angeles, reported that she purchased stock in Fannie Mae of Washington more than a year ago. It is a holding she expects to prove successful in the long-term. Ms. Jaffee also eyes companies that other managers consider out of favor. “We look at historically the company’s earnings growth,” she said. “When it’s not there, other managers move on. But if the company meets our other valuation characteristics, it could be exciting for us.” Being a contrarian is a point of pride for John Osterweis, president and chief investment officer at Osterweis Capital Management of San Francisco. “We are looking for companies which have done poorly [but where there is a] catalyst to drive them into much higher growth,” he said. Another approach is to identify investment themes that have long-term payouts. “We look at technical analysis,” said Ralph Shive, chief investment officer at 1st Source Corp. Investment Advisors Inc. of South Bend, Ind. “We look for big swings on major industries,” he said. The managers varied on their approach to cash, with some holding less than 2%, and others holding cash as an investment tool. Several of them discussed finding good investment opportunities in the specialty pharmaceutical segment of the health-care sector.