Rob Roquitte, whose Harris Insight Small Cap Value Fund rose almost twice as much as competing mutual funds during the past year, is buying...
Rob Roquitte, whose Harris Insight Small Cap Value Fund rose almost twice as much as competing mutual funds during the past year, is buying technology and health-care stocks after cutting his holdings of energy shares.
Roquitte purchased shares of Ventiv Health, a provider of marketing services to pharmaceutical companies, and Agilysys, a distributor of software. He sold Frontline Ltd., the world’s biggest oil-tanker company, and San Juan Basin Royalty Trust, an owner of oil and gas properties, on concern that oil prices may be peaking.
“Energy is less attractive to us today than it was a year ago,” said Roquitte, who manages the $426 million fund with Paul Kleinaitis in Chicago at Harris Investment Management.
“There is still upside potential but more downside risk.”
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The Harris Insight fund climbed 27 percent in the past 12 months (through March 22), outpacing the average 14 percent gain of 149 similar funds tracked by Bloomberg. The funds invest in companies with market values of less than $1.8 billion whose shares are considered inexpensive relative to earnings and other financial yardsticks.
The top performer in the group was the Oakmark International Small Cap Fund, managed by David Herro and Chad Clark, which rose 31 percent.
Roquitte and Kleinaitis have about 120 stocks in their fund. The managers focus on companies that are reporting revenue growth and stable earnings relative to analysts’ estimates.
Vehicles to bananas
The fund’s largest holdings range from United Defense Industries, the maker of Bradley Fighting Vehicles, to mental-health-services provider Psychiatric Solutions to Chiquita Brands International, the world’s largest banana producer.
Roquitte started managing the fund a year ago, joining Kleinaitis. The fund’s energy position was about 14 percent of the portfolio at the time, almost three times the average for the Russell 2000 Index.
“We thought that was a good place to be, but we certainly didn’t foresee oil prices hitting the mid-$50s,” Roquitte said. The fund has since trimmed its energy stake to 10 percent, selling Bermuda-based Frontline and San Juan Basin of Fort Worth, Texas, during the third quarter. Shares of Frontline more than doubled in the past year, while San Juan Basin’s stock rose 36 percent.
Record oil prices
“We’re never perfect at predicting the top of these stocks,” Roquitte said. “We took the opportunity to take some profits and re-deploy it.”
New York crude prices climbed 54 percent in the past year amid supply concerns and increased demand from China. Roquitte started selling energy shares in the second quarter.
“I believe we’re getting close to the end of the energy bull market,” said Ned Riley, chief investment officer of Riley Asset Management in Boston.
Technology and health-care holdings accounted for about 24 percent of Harris Insight fund’s assets at the end of February.
Shares of Somerset, New Jersey-based Ventiv Health surged 85 percent in the past year. The company has raised its 2005 earnings forecast by 5 percent to $1.03 to $1.09 a share, after profit rose more than fivefold last year.
Shares of Agilysys soared 70 percent in the past year. The Mayfield Heights, Ohio-based company, which sells software developed by IBM and Hewlett-Packard, said earnings in the three months ended Dec. 31 gained 63 percent to $14.2 million as sales climbed 12 percent.
“They’ve increased their sales significantly despite the relatively weak technology-spending environment,” Roquitte said.
Roquitte in December added San Diego-based Websense, a company that makes software to monitor Internet use. Its shares more than doubled in the past year, and sales surged more than tenfold since the company was founded in 1999.
“More companies are keeping an eye on productivity, and this is one way they can do that,” Roquitte said.
He scaled back his stakes in shares of financial-services companies on concern about rising interest rates. They still represent the largest portion of his fund’s assets, at 25 percent.
The Federal Reserve raised the benchmark overnight lending rate on March 22 by a quarter-point to 2.75 percent, the seventh increase since June. Fed policy-makers said pricing pressures have increased and indicated they will keep raising interest rates to prevent faster inflation.
The Harris Insight fund’s largest holding is United Defense Industries, whose shares more than doubled in the past year. BAE Systems, Europe’s largest defense contractor, agreed March 7 to buy Arlington, Virginia-based United Defense for almost $4 billion.
Roquitte expects gains in small-cap stocks to continue to outpace large-cap stocks. The median 2005 earnings-growth estimate of companies in the Russell 2000, a measure of small companies, is 18 percent, compared with 12 percent for the Standard & Poor’s 500 Index, according to Leuthold Group, a stock-research firm in Minneapolis.