James Schier's Security Mid Cap Value Fund may outperform the stock market for an eighth straight year, helped by gains in Shaw Group and...
James Schier’s Security Mid Cap Value Fund may outperform the stock market for an eighth straight year, helped by gains in Shaw Group and McDermott International, two Louisiana-based engineering companies whose shares rose after Hurricanes Katrina and Rita caused billions of dollars of damage on the Gulf Coast.
Schier said he’s held the stocks for as long as five years because he expected them to get a lift from increased investment in the industrial and public infrastructure.
“We did have things that benefited from the mess down there and the need to build up,” Schier, said in an interview from Security Benefit Group’s office in Topeka, Kan.
His $526 million fund rose at an annual rate of 27.8 percent in the past three years, placing third among 54 competing funds tracked by Bloomberg.
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The top performer was the RS Value Fund, up 34.5 percent a year. The funds invest in companies with market values of $5 billion to $25 billion that tend to have low price-to-earnings ratios.
Schier’s fund has outpaced the Russell 2000 Index every year since 1998 and was exceeding the index by 5.2 percentage points this year, as of Sept. 13.
The fund’s name may be considered a misnomer because about half of its assets are invested in smaller-company stocks, said Greg Carlson, an analyst at Morningstar, a Chicago-based research firm. The fund also “straddles the line” between value and “blend” funds, which invest in some companies with faster growth characteristics, Carlson said.
The fund has the flexibility to invest in a mix of stocks and it “tilts to the sectors that seem to be offering us more opportunity,” Schier said.
He uses statistical analysis and company-specific research to identify low-priced stocks. He said he seeks companies capable of improving their returns on capital over three to five years.
He made an early commitment to energy-related companies, establishing a position in 1999 when oil closed at $25.60 a barrel. It now trades at about $65. The fund had 22 percent of its assets in the sector at the end of August, almost triple the 8 percent held by the average small-company blend fund.
Schier’s energy holdings include Arch Coal of St. Louis, the second-largest U.S. coal producer, which has gained 79 percent this year, and Murphy Oil, based in El Dorado, Ark., up 25 percent.
Murphy Oil has said its refinery east of New Orleans, which has a 125,000-barrel-a-day capacity, may be shut for months.
Storm-related costs for refining companies, including Murphy Oil, “should be more than offset by higher prices,” said Justin Perucki, a Morningstar analyst. After Katrina, the average per-gallon cost of gasoline rose to its highest inflation-adjusted level in 24 years.
Schier declined to discuss recent stock trades in detail. He said he halved his investment in one company that recently jumped in value.