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Equity funds struggle in tough second quarter

Rochester Business Journal
August 10, 2012

 Only one locally managed equity mutual fund had a positive return in a turbulent second quarter, with all 20 bond funds managed by the Rochester Division of Oppenheimer Inc. posting slight gains.

The Burnham Financial Services Fund managed by Mendon Capital Advisors Corp. grew by 4.3 percent. The only other equity fund to avoid a loss was the Manning & Napier Pro-Blend Conservative Term Series, which was flat.

The local Oppenheimer funds were paced by returns of 4.9 percent from the AMT-Free Municipals and 4.2 percent from the California Municipal Fund.

The division's trademark Rochester Fund Municipals gained 2.7 percent

The local returns compare with a quarterly loss of 2.6 percent, including dividends, by Standard & Poor's 500-stock index.

Two Manning & Napier global funds took the biggest hits. The World Opportunity Series and the Overseas Series each lost 9.3 percent in the second quarter.

The Bullfinch Fund Greater Western New York Series, a regional portfolio managed by Mendon-based Bullfinch Fund Inc., slipped 3.5 percent in the quarter.

Constellation Brands Inc., IEC Electronics Corp. and Southwest Airlines Co. were the best performers, Bullfinch Fund president and portfolio manager Christopher Carosa said.

Shares of Constellation Brands were up 13.7 percent for the quarter, to $26.74. IEC Electronics gained 12.3 percent, to $6.11. Southwest Airlines improved by 13.1 percent, to $9.30.

VirtualScopics Inc. was among the laggards, Carosa said. The stock slumped 42 percent, to 93 cents a share.

The HNP Growth and Preservation Fund, a portfolio of securities that tracks indexes and commodities, fell 4.5 percent for the quarter.

The fund, managed with a formula implemented three years ago by representatives of HNP Capital LLC in Brighton, marked its first anniversary as a publicly traded entity on June 1.

"Whenever you draw something up on paper, rarely when you implement it in the real world does it come out the way you anticipated," said David Kailbourne, who manages the portfolio with HNP Capital co-founder and principal Christopher Hobaica.

"That being said, we're very happy with the progress of the fund and the performance of the fund. It is doing exactly what we designed the fund to do."

The Growth and Preservation Fund is well-diversified, Kailbourne said.

"When the markets and asset classes go to the upside, we have the ability to somewhat stay on pace," he said. "We're never going to match it, leg in and leg out, but the most important side of the way we manage money is the preservation side.

 "When you see markets start to turn and trend to decouple, or an asset class starts to exit from a price trend, our disciplined mathematical formula is something we follow day in and day out."

Using mathematical algorithms, Kail-bourne said, he and Hobaica can react quickly to downturns.

The best evidence of that was the second quarter of 2011-the fund's first three months-and the most recent quarter, Hobaica said.

 "Those were both periods where the market was extremely volatile and where things were starting to get ugly," he said. "In both periods, we significantly outperformed our peers. This last quarter, Morningstar classified us in the top 2 percent of all funds in our category nationwide."

The fund lost 5.3 percent of its value in the 12 months ended June 30. Eleven locally managed equity portfolios performed better than that. Four performed worse.

"For the last 12 months, there's been really no rhyme or reason to certain asset classes," Kailbourne said. "They go up; they go down. It's been a very choppy, very staggered, market.

"That's probably the worst-case scenario of launching a fund with the way we manage money. There has been no firm trend established. As such, you have the ability to get a little bit whipsawed."

Over the longer term, Kailbourne said, he is confident the Growth and Preservation Fund formula will outperform. "It has the objectivity and discipline to identify an asset class as it is on the up trend, and when that asset class decouples or leaves that price up-trend, we have the discipline to sell that asset class and remain on the sidelines and look at a better entry point somewhere later in time." / 585-546-8303

8/10/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email


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