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Local mutual funds notched modest gains in Q3

Rochester Business Journal
November 16, 2012

Locally managed mutual funds posted modest gains in the third quarter, led by returns of 11.9 percent from the Burnham Financial Industries Fund.
Eight of the 36 local funds matched or outperformed the Standard & Poor's 500-stock index, which rose 6.4 percent after dividends.
In addition to the pacesetting financial industries fund, the Burnham Financial Services Fund was up 6.4 percent for the quarter.
"Takeovers are something I've always focused on in financial services," said portfolio manager Anton Schutz, president of Mendon Capital Advisors Corp. in Brighton. "The pace has really quickened in the last quarter, particularly some of the smaller transactions that helped contribute to some of the gains in the funds."
Buffalo-based M&T Bank Corp.'s pending $3.7 billion stock-and-cash acquisition of Hudson City Bancorp Inc. is an example, Schutz said, as is the $233.4 million purchase in 2013 of Syracuse-based Alliance Financial Corp. by NBT Bancorp Inc. of Norwich, Chenango County.
"To some extent, all the things that are bad for the banking sector-the flat yield curve, the lack of loan demand, a lot of regulation-actually encourages more M&A to happen because it's harder for the small guys to make money," Schutz said.
The Manning & Napier Tax Managed Series, managed by Manning & Napier Fund Inc. in Perinton, was the quarter's second-best performer, returning 8.8 percent.
The Manning & Napier Equity Series was third with a return of 8 percent. The Manning & Napier Pro-Blend Maximum Term Series was fourth at 7.9 percent.
The lowest returns of the quarter belonged to the Bullfinch Fund Inc.'s Greater Western New York Series, which climbed 0.3 percent.
The fund's best performers included Frontier Communications Corp., whose stock rose 32 percent to $4.96, Harris Interactive Inc., up 31 percent to $1.48, and Genesee & Wyoming Inc., up 27 percent to $67.11.
Its worst performers included Ultralife Corp., down 19 percent to $3.11 at quarter's end.
The markets have moved in fits and starts in the days since President Barack Obama won re-election, Democrats retained control of the U.S. Senate and Republicans held the House of Representatives.
The S&P dropped 3.6 percent on the first two trading days after the Nov. 6 elections, the Dow Jones Industrial Average fell 3.3 percent and the Nasdaq Composite Index declined 3.9 percent.
"I think the market liked the fact that (Mitt) Romney actually stood a chance at one point," Schutz said. "Once he showed pretty well in the debates, the market reacted pretty well because the market was hopeful that someone who was more favorable towards free market enterprise would potentially be the president.
"Now we have a whole bunch of issues. We have more of the same. We have a Congress that many of us are afraid of, because a lot of them came back."
Lawmakers finally will set out to negotiate a deal averting the recession that would be expected to follow significant spending cuts and tax increases now scheduled to occur at the end of the year.
"It depends on who folds first, and it looks like the Republicans will probably fold first," said Christopher Carosa, Bullfinch Fund president and portfolio manager.
"My guess is they're probably misreading the election. The election was all about the status quo and people liking nothing happening, which isn't too good for the economy. But that seems to be what they voted for."
A compromise seems likely to include elimination of the Bush-era tax cuts, consequently raising the rate on capital gains to 20 percent from 15 percent for most filers, and adding multiple layers of taxation on income, Carosa said.
"That will put downward pressure on stocks through the end of the year," he said. "People will want to get their capital gains in hand before the end of the year. Traditionally, when that happens, the market goes lower.
"That being said, I'm wondering if you'll see a bounce in the market if a deal is made, only because a deal is made and people will be happy. Long-term, it really depends on what kind of deal it is and what the implications are."
Meanwhile, Greece and other European countries continue to wrestle with debt problems.
"The market is not very confident right now," Schutz said, "and it's happened at the same point in time as more Greece headlines. It's hard to read through it easily, as to how much of it is the election and how much of it is Greece. Clearly, it's both.
"That being said, I'm still pretty comfortable that M&A is going to continue and accelerate in my space."

11/16/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email

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