Barry James, manager of the $395 million James Balanced Golden Rainbow Fund, is buying stocks after a shift away from equities in mid-2007...
Barry James, manager of the $395 million James Balanced Golden Rainbow Fund, is buying stocks after a shift away from equities in mid-2007 helped him outperform all but one rival during the first part of this year.
James, president and chief executive of James Investment Research of Xenia, Ohio, has jumped into such stocks as Hewlett Packard, the world’s biggest personal-computer maker, and fast-food chain McDonald’s.
The Golden Rainbow fund declined only 1.6 percent this year through March 13, including reinvested dividends, ranking second among 207 balanced funds that invest in both stocks and bonds, according to data compiled by Bloomberg. John Hancock Balanced Fund, with $529 million in assets, ranked first with a 1 percent drop.
The Standard & Poor’s 500 Index fell 13 percent during that time period. James usually keeps 40 to 65 percent of the fund’s holdings in stocks. The fund was about 65 percent in stocks when he began selling.
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The fund’s allocation is driven by research developed by James’ father and company founder, Frank James, who now serves as chairman. Tracking more than 100 risk measurements that include macroeconomic indicators, monetary policy, investor sentiment and trading trends, the research team in July 2007 predicted trouble for equity markets. By year’s end, the manager had reduced equities to less than 40 percent.
The switch helped the fund return 8.6 percent in 2007, compared with a 5.5 percent gain for the S&P 500. Over the past five years, the fund has an average annual return of 12 percent, ranking it 20 out of 136 similar funds.
Morningstar, the Chicago-based fund research firm, gives the Golden Rainbow Fund five of a possible five stars. Its three-year Sharpe ratio is 0.68, compared with 0.18 for the peer group, according to Bloomberg. A higher Sharpe ratio means better risk-adjusted returns.
After recent stock buys the fund has 43 percent of assets in equities, 34 percent in medium- and long-term bonds and 21 percent in short-term U.S. Treasurys, government-agency bonds and money-market funds.
The fund’s biggest equity holding as of Dec. 31 was a $5.5 million stake in diesel-engine manufacturer Cummins of Columbus, Ind., which more than tripled in 2007. It also held $4.8 million stakes in Birmingham, Ala.-based energy-exploration and -production company Energen, up 38 percent last year, and Merck of Whitehouse Station, N.J., the third-largest U.S. drug maker. Merck gained 37 percent last year.
James said he has increased technology-related holdings to 14 percent of his equity portfolio. He said he’s encouraged especially by prospects for export-oriented companies because of the weak U.S. dollar.
For the same reason, he has upped his industrial stocks to 17 percent of equity holdings. Another recent buy was Decatur, Ill.-based agricultural-commodities company Archer-Daniels-Midland.
James’ optimism doesn’t yet extend to financials, which account for 7 percent of his stocks.
“When it comes to stock selection, we’re looking for good relative value, a good history of earnings and for stocks that are outperforming the market,” he said.