Gulf Coast Fund Thrives After Hurricane Katrina
The recovery from Hurricane Katrina is a long, hard slog for New Orleans. While the French Quarter has rebounded, the Lower Ninth Ward still resembles a war zone more than a year after the hurricane wreaked its fury. Yet, investors remain confident in a Gulf Coast comeback. One gauge of their enthusiasm for the region and the Crescent City is the Hancock Horizon Burkenroad fund. It invests mainly in stocks of small companies based in the Big Easy and surrounding Southern states. Assets in the tiny fund have nearly doubled, to $22 million, from just $12 million a year ago. "We got a lot of attention from people who want to invest in the Katrina recovery," says David Lundgren Jr., the fund's manager.
Student analysts at Tulane University, in New Orleans, aid Lundgren's search for small-company stocks. The Burkenroad program, run by Tulane finance professor Peter Ricchiuti, a former professional analyst, assigns students to research stocks of 50 regional companies. Students mainly follow obscure firms -- Ricchiuti calls them "stocks under rocks" -- that are not covered by the pros and sport market values of less than $500 million. The student analysts meet with company managers and produce reports each semester.
Tulane closed for a semester last fall to repair Katrina damage, but Burkenroad analysts were back in action by January. Lundgren chooses about half of the fund's 56-stock portfolio based on Burkenroad research, which is available free at www.burkenroad.org.
Energy stocks represent a quarter of the fund's assets. Among the holdings are many small firms that supply services and equipment to deep-sea oil rigs. One long-time holding is Superior Energy Services (symbol SPN), which rents lifeboats and other equipment to drilling outfits. Ricchiuti expects this company in particular to benefit from the recently announced discovery of a huge oil and gas deposit in deep waters of the Gulf of Mexico. The fund also owns a stake in Energy Partners (EPL), an independent oil and natural gas producer based in New Orleans that faces a hostile takeover bid by Woodside Petroleum of Australia.
Local banking stocks are another favorite in the Burkenroad fund. Top-ten holding Iberiabank Corporation (IBKC) is a prime example. Recently at $59, shares of the 119-year-old Gulf Coast bank have risen 12% in the past year. Regional banks have received more deposits because of hurricane-related insurance settlements. Plus, Ricchiuti says, banks expect huge loan demand from residents as they rebuild.
As a play on a Gulf Coast recovery, you could do worse than Hancock Horizon Burkenroad (HYBUX, 800-522-6542). The fund gives you one place to invest in many overlooked companies that could gain from a regional resurgence. Over the past three years, the fund has returned an annualized 16%. Its D shares levy no sales charge but carry above-average annual fees of 1.65%. If you pick your own stocks, the Burkenroad Web site is a good place to troll for ideas.