Monday, February 9, 2009

Checking in with Manu Daftary of Quaker Strategic Growth (QUAGX)

Towards the bottom of the right margin I have a list of some growth managers who I like to follow to see what they are thinking; I plan on taking a look at some every so often on the website. Generally funds only update their holdings once a quarter and we are approaching the deadline for fourth quarter 2008's filings.

One such name of interest is Manu Daftary who sub advises Quaker Strategic Growth (QUAGX). The fund has roughly $650M in assets and he has been at the helm since 1996. The fund falls under Morningstar's large cap growth category which is confirmed by the average market cap of $23.5 Billion... however Daftary runs a concentrared style (currently 39 stocks with 40% of the money in the top 10 positions) with relatively rapid turnover. So while we tend to favor a smaller market cap, stylistically it's a similar approach on the long side. Once the market gets back to normal I will also be focused on higher concentration positions but since we are heavy in cash, many of my positions are in the 1-3% weighting.

Recent results have been poor, but as the fund has fallen in the bottom 20% of its peer group for the 1 year period - but that is the curse at times of running an aggressive, concentrated fund. In the 5 and 10 year categories - a better time frame for investment acumen - this fund remains in the top 10%. The nice thing about this family of funds is they update positions more frequently than the standard "quarterly" report that is required so we have positions as of 1/31/09. Let's see what his top positions are:
  1. 4.3% - Novartis (NVS)
  2. 4.2% - Philip Morris International (PM)
  3. 3.9% - Abbots Labs (ABT)
  4. 3.9% - Biogen (BIIB)
  5. 3.9% - Baxter (BAX)
  6. 3.7% - Celgene (CELG)
  7. 3.7% - Hess (HES)
  8. 3.7% - Roche (RHHBY)
  9. 3.7% - Genzyme (GENZ)
  10. 3.5% - Total SA (TOT)
So as we see, 40% of the money is in these positions and this is a VERY defensive posture almost completely in healthcare. We've identified healthcare and defense as areas we like in 2009 from a "revenue stability" standpoint, but we are playing in smaller names on the healthcare front. Some interesting names in the next tier of holdings are: Andarko (APC), Potash (POT), Southwest Energy (SWN), Monsanto (MON), Archer Daniels Midland (ADM), and XTO Energy (XTO). So you can see a potential set up for a "reinflation/commodity" trade with a major focus on agriculture and to some degree natural gas. We own Potash and Monsanto as well, as a few of our large caps... agriculture remains my favorite long term trend as no matter the economy people need to eat - plus I long the long term trend as believe we have some major crisis coming in the years ahead as the world's population [Jun 20: World Population to Hit 7 Billion by 2012] continues out of kilter with the ability to produce. [Nov 26, 2008: Food Crisis to Resume Next Year?] [Mar 24: WSJ - New Limits to Growth Revive Malthusian Fears]

Mr. Daftary founded DG Capital Management in 1996. He began his investment management career at the University of Southern California in 1985 where he was Assistant Treasurer – Investments. In 1988, he joined Geewax, Terker & Company as a Portfolio Manager and was co-manager of the firm’s institutional accounts. In addition, he also was Manager of equity short selling for the firm’s hedge fund assets and also designed the option overlay program that was utilized in the firm’s institutional accounts. In 1993, he joined Hellman, Jordan Investment Management Company as a Senior Vice-President/Portfolio Manager with lead responsibility for $500 million in institutional assets and was also involved in the management of $150 million in hedge fund assets. Mr. Daftary has a BA in economics from the University of Mumbai, India and a BS and MBA from California State University at Long Beach. He is a Chartered Financial Analyst.

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