Energy stocks are ones to watch, fund managers say | The Honolulu Advertiser

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Energy stocks are ones to watch, fund managers say | The Honolulu Advertiser | Hawaii's Newspaper

Posted on: Sunday, January 25, 2009

Energy stocks are ones to watch, fund managers say

By MARK JEWELL
Associated Press

3 TO WATCH

Small-cap stocks are getting close scrutiny these days because they typically recover earlier coming out of a recession than large-cap stocks. A look at three top small-cap mutual funds and their managers:

Intrepid Small Cap (ICMAX)

Assets: $40 million

2008 return: Down 7.1 percent

3-year annualized return: 4.45 percent

5-year annualized return: n/a

Managers: Eric Cinnamond, Gregory Estes, Mark Travis

Expense ratio: 1.95 percent

Heartland Value Plus (HRVIX)

ASSETS: $705 million

2008 return: Down 17.9 percent

3-year annualized return: -3.46 percent

5-year annualized return: 0.97 percent

Managers: Brad Evans, Adam Peck, Michael Petroff

Expense ratio: 1.21 percent

Paradigm Value (PVFAX)

ASSETS: $82 million

2008 return: Down 33.9 percent

3-year annualized return: -8.65 percent

5-year annualized return: 3.52 percent

Managers: Jonathan Vyorst, Jason Ronovech

Expense ratio: 2.02 percent

Data through Jan. 21

Sources: Morningstar Inc., fund managers

BOSTON — As market observers watch for signs that better times are around the corner, they're paying close attention to small-company stocks, which tend to recover earlier than large-company stocks coming out of a recession.

No one's sure when markets will rebound this time around, or whether small companies — "small-caps" in trader talk — will again help usher in a recovery. Generally defined as companies with market values of $300 million to $2 billion, small-caps have fallen out of favor.

But that may be changing.

Small-caps collectively suffered a 26 percent loss in the fourth quarter compared with a 22 percent decline for large-caps, fund tracker Lipper Inc. says. But that's mainly because small-caps had a terrible start to the quarter in October and November. In December, small-caps outperformed bigger categories by posting a 5 percent gain.

To find out what market opportunities small-cap stock fund managers see these days, The Associated Press interviewed three managers with strong track records.

Eric Cinnamond, Intrepid Small Cap Fund: This value fund has roughly doubled its assets to $40 million in recent months, as investors were drawn by its relatively strong performance in a lousy market.

The recession has led energy companies to halt work on new drilling rigs, leaving drillers with plenty of equipment in production well-positioned, Cinnamond says. Among his top picks: oil drillers Patterson-UTI Energy Inc. and Unit Corp., and Tidewater Inc., which runs a fleet of boats serving offshore oil and gas rigs.

While energy stock prices may be down, demand for energy will stay relatively resilient despite the recession, Cinnamond says.

Brad Evans, Heartland Value Plus Fund: This $705 million value fund posted a relatively small loss of nearly 18 percent last year, thanks in part to a portfolio light on financial stocks. Evans, one of the fund's co-managers, counts Unit Corp. among his fund's top five holdings. Like Cinnamond, Evans sees plenty of opportunity in energy, particularly natural gas.

While the recession will sap industrial demand for natural gas, demand for residential use will likely see little change at a time when U.S. capital investment in new drilling declines — market forces he doesn't see reflected in energy stocks' current low prices.

One of his top energy picks is oil and gas producer Cimarex Energy Co., which Evans touts as having a solid balance sheet and low debt.

Jonathan Vyorst, Paradigm Value Fund: This $82 million fund had an off year last year, losing nearly 34 percent, after outperforming its peers with a 3.5 percent average annual return over the past five years. Vyorst, the fund's co-manager, is cautious about placing any bets on specific sectors.

He likes industrial stocks, reasoning demand for their products will eventually rebound once the economy turns around. His fund's top holding is Kaman Corp., a distributor of aerospace and industrial parts.

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