Manning & Napier Uses Mix Of Styles

The fund wants to win with a mix of growth, value and cyclical names.

"We try to use three strategies," said Robert Pickels, co-manager of the $205 million portfolio (NASDAQ: - ).

Growth stocks, which Pickels and his colleagues also call profile strategies, must be companies that are growing fast or running units that are. They must also have some way to fend off competitors.

"We want only companies that have a competitive advantage or enjoy barriers to entry," Pickels said.

The fund looks for cyclicals at a low point 14 their lifecycle.

"We're looking for situations where you've got weak demand, poor profitability and poor returns," Pickels said. "At the same time, we look for situations where demand can get better, boosting profits and returns."

As for value stocks, the fund aims for companies whose prices don't reflect true value.

"We want companies that for whatever reason the market isn't appreciating their asset value or cash flow," Pickels said. "Maybe business is bad temporarily. Maybe the company is going through a restructuring."

The fund's three-pronged approach has produced a 2.06% gain so far this year, going into Thursday. Its small blend rivals tracked by Morningstar averaged a 1.04% gain. The big-cap S&P 500 was up 5.12%. Results reflect the market's swing toward big caps after a multiyear preference for small caps.

Over the past three years the fund's average annual gain was 17.19% vs. 12.75% for its peers and 11.46% for the S&P 500.

The fund bought Pride International (NYSE: - ), now a top holding, as a cyclical play nearly six years ago. Its cost is less than half the stock's current price around 36.

Pride provides offshore and onshore contract drilling services. Shares are up 21% so far this year. Earnings per share growth has accelerated for two quarters. Second-quarter EPS grew triple digits.

Pride benefits from higher day rates for its rigs in the Gulf of Mexico, Pickels says. The firm also is selling a land-rig subsidiary. It will use proceeds to pay down debt, which is high vs. its peers.

Pent-Up Potential

"The industry went through a long period of underinvestment in equipment to get oil out of the ground," Pickels said. "There wasn't much incentive to spend money. But we figured underinvestment would lead to pent-up demand. That's been realized in this decade dramatically."

The fund bought Wright Medical (NasdaqGS: - ), now another top holding, as a deep value play two years ago. The stock's market value was two-times sales, when its peers were trading at four to five times sales.

The company makes joint replacement devices. Investors felt Wright had done things wrong under its prior management. Cost structure was bloated. New managers fixed that. They could have been helped by a new hip resurfacing device. If successful, Wright would be a tempting takeover target, Pickels says.

The hip resurfacing product didn't work out, he adds. But cutting cost did. EPS growth has topped investors' expectations, he says. This year the stock is up 15%.

Calgon Carbon (NYSE: - ) is a cyclical stock the fund bought in December. In the past two quarters, EPS jumped 163% and 229%. Before that, EPS slipped in five of the prior seven quarters. The stock is up 122% this year.

The company is seeing benefits of a restructuring. "They make active carbonates, which will be used by coal companies to scrub mercury emitted by boilers."

China had dumped active carbonates on U.S. markets. Tariffs were put in place to discourage that.

Coal companies had not invested much in environmental systems. "Now for economic and political reasons, incentives are growing to invest in scrubbing facilities," Pickels said. "Those will help cut down carbon emissions and mercury."

Hansen Natural (NasdaqGS: - ) is a growth play. The stock is up 44% this year.

Energy drinks are a fast-growing segment of the beverage market, and Hansen is taking market share in its niche, Pickels notes.