Muhlenkamp Fund Is Redeemed
The list of fading star stock-fund managers who have ridden the elevator back to the top in 2009 is already plenty long. Now let us make room for Ron Muhlenkamp, whose eponymous fund is again beating its peers after several bad years. The Muhlenkamp Fund (symbol MUHLX) is up 28% year-to-date through November 27.
Muhlenkamp’s rebound is in some ways a direct result of the manager’s missteps and the market’s rocky times. Like so many other fallen (and shrunken) funds run by smart people, the Muhlenkamp fund didn’t spare its shareholders from disaster in 2008. Despite avoiding the worst among the financial stocks and building a 40% cash reserve, the fund lost 40% for the year. A big cause: Ron Muhlenkamp held on to too large a position in energy stocks for way too long. It wasn’t his first sector blunder in the latter part of this decade after a long string of genius calls that made the fund one of the very best in 2003 and 2004.
Early in 2009 he started to put the fund’s cash back to work, emphasizing technology and depressed financial stocks. Those have been two of the best-performing sectors since the market’s March low. And that’s why the fund’s strong gains this year are so connected to the market’s crash.
As a value-conscious manager, Muhlenkamp says, he had never been able to justify owning significant stakes in the largest tech stocks until recently because he thought they were too expensive. And he’s not likely to tempt fate for too long. He’s already scaling back holdings of International Business Machines (IBM), which has soared, replacing it with Hewlett-Packard (HPQ). Another current top tech holding is Cisco (CSCO), which he says “stands alone atop its mountain” in the networking-gear business.
Health is the other place that’s caught Muhlenkamp’s eye. He’s loaded up on Pfizer (PFE) and UnitedHealth Group (UNH) even though some investment people are wary of both companies for fear that a reorganization of the health-insurance system will be bad for their profits. Muhlenkamp says the companies are indispensable to the health industry -- and good opportunistic buys. “The last time you had the chance to buy drug companies this cheap was during HillaryCare,” he says, referring to 1992 and 1993.
And it doesn’t hurt Pfizer’s case, in his eyes, that the company gushes out rivers of cash. “Most companies that generate a lot of cash have a great tendency to pour it down a rat hole,” he says. Pfizer, by contrast, is doing something useful -- paying cash back to shareholders in dividends and making smart acquisitions, as it recently did when it acquired Wyeth.
The strong 2009 results are helping to resurrect Muhlenkamp’s favorable long-term record. Despite a rocky four years from 2005 through 2008, when the fund lagged its peers in every year and investors yanked more than $2 billion from the fund, Muhlenkamp’s record is decent. The fund’s 5% annualized gain over the past ten years easily surpasses Standard & Poor’s 500-stock index’s 1% annualized loss. That’s better than 90% of similar funds.