Federated Kaufmann Fund's Lawrence Auriana and Hans Utsch, whose bets on the fastest-growing U.S. companies made them top-ranked managers...
Federated Kaufmann Fund’s Lawrence Auriana and Hans Utsch, whose bets on the fastest-growing U.S. companies made them top-ranked managers over the past two decades, say India is the future.
They have 15 percent of the $11.5 billion mutual fund invested in Indian companies, including mortgage lender Housing Development Finance and wireless operator Bharti Airtel. That compares with a 1 percent allocation in Asia’s emerging markets for the fund’s competitors, according to data compiled by Chicago-based research firm Morningstar.
“We’re always looking for growth, and the growth right now is going on in India and China,” Auriana said in an interview in his New York office. “The valuations aren’t as extreme in India as they are in China.”
Kaufmann Fund rose 21 percent in 2007, better than 87 percent of its peers that concentrate assets in midsize companies with above-average sales or earnings growth, according to data compiled by Bloomberg. The fund has gained at annual rate of 15 percent since 1987, their first full year, ranking it No. 1 of 34 rival funds, according to Denver-based research firm Lipper.
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Among the fund’s bets in India in 2007 were Mumbai-based Housing Development Finance, the country’s second-biggest mortgage lender, and New Delhi-based Bharti Airtel, its largest wireless-network company.
Housing Development, partly owned by Citigroup, advanced 77 percent last year on demand for loans in an economy that’s grown at an average pace of 8.6 percent over four years. The company was Kaufmann Fund’s No. 3 holding as of Dec. 31.
Bharti Airtel, the fund’s fifth-biggest position, gained 58 percent in 2007. The company, controlled by billionaire Sunil Mittal, agreed in December to sell a $1 billion stake in a unit to investors, including Citigroup and Goldman Sachs Group.
The same month, Standard & Poor’s raised Bharti Airtel’s debt rating to investment grade for the first time after the company reported a total of 48.9 million users as of Sept. 30.
Rising wages in India have increased wealth, fueling booms in real estate, banking services and consumption. The Bombay Stock Exchange Sensitive Index rose 49 percent, including reinvested dividends, in 2007. The U.S. benchmark Standard & Poor’s 500 Index returned 5.5 percent in the same period.
Morningstar gives the Kaufmann Fund four of a possible five stars. Its one-year Sharpe ratio is 0.72, compared with 0.11 for the peer group, according to Bloomberg data. A higher Sharpe ratio means better risk-adjusted returns.
Morningstar recommends against investing in the fund because its 1.95 percent expense ratio is higher than 90 percent of similar funds and Utsch invests only $10,000 of his own money in the fund. Utsch declined to comment.
Auriana, in response, said the fund rose an average of 20 percent over five years. The S&P 500 climbed 11 percent.
“You can’t argue with the results,” Auriana said. “Success is our revenge” on Morningstar.
The Kaufmann Fund seeks growth companies that are “leaders in their area of expertise,” Auriana said. Turnover is 49 percent, meaning the fund’s holdings change once every two years, compared with 118 percent for the average mid-cap growth fund, according to Morningstar.
The biggest gainers for the fund in 2007 included Phoenix-based solar-module maker First Solar, which rose almost ninefold, and silicon-wafer producer MEMC Electronic Materials of St. Peters, Mo., which more than doubled.