Jerry Jordan, one of the top-performing U.S. growth fund managers over the past three years, says he's sold all his holdings of Apple and Google because their stock prices had gotten too expensive.
In fact, he is shunning virtually all technology stocks based in the United States and Europe. Instead, he has piled into what he considers the new darlings of the market: small Chinese tech companies including NetEase.com and Sohu.com.
The growth is much faster, it's much more of a green field opportunity, says Jordan, 43, during an interview from his spacious Boston office that includes room for four traders and a view of Boston Harbor.
The Jordan Opportunity Fund, which he opened in 2005, has returned an average of 3.5 percent annually for the past three years, better than all but two of 367 similar growth funds tracked by Lipper. The returns may not seem like much but the average similar fund lost 4.4 percent a year over the past three, as the Standard & Poor's 500 .SPX index dropped 5.6 percent annually.
Over the past 10 years, the account Jordan manages for institutional investors has outperformed the S&P by an average of 6 percentage points a year.
The biggest bet in the fund remains, as it has been for the past few years, a huge overweighting toward commodity producers. In Jordan's view, demand for many raw materials will increasingly outstrip supplies.
The commodity bet caused the fund's return to lag last year when the price of oil collapsed. But Jordan held on and many of his positions have zoomed. Coal producer Massey Energy has nearly tripled this year and oil services outfit Oceaneering International has doubled.
Still, Jordan's love of commodities has not led him to buy any such companies based in emerging markets. He is sticking with U.S., European and Australian companies.
Emerging market companies entail a higher risk of government interference, poor management or bad accounting, he says. All producers worldwide benefit from the same trends in supply and demand. If you sell corn here or in China, it's still corn -- it's a global marketplace, says Jordan.
'HE'LL PULL STATS FROM 40 YEARS AGO'
Jordan and his team, who oversee a total of about $300 million between the fund and private accounts, keep a low-key patter going throughout the day. The traders keep Jordan up to date on market developments and he calls out occasional buy or sell orders as he monitors the prices of his holdings and other potential purchases on a large screen at his desk.
Typically, the fund does not buy stocks because of a specific angle affecting just a single company. Jordan looks for broader themes affecting a group, or an industry, and prefers to spread his bets for each theme over several stocks.
Jordan and his analysts then look for broad statistical indicators to help stay on top of each theme. In the case of Chinese online companies, for example, Jordan monitors periodic reports on growth in the total number of Internet users and spending rates of middle class consumers.
New themes are generated with brute force, Jordan explains, saying he reads a wide assortment of trade journals and talks to executives in different industries.
He also runs a filter to generate lists of stocks with above-average growth, or loss in revenue and profits, or unusual price patterns. But the screening is only a starting point to find underlying factors that may be affecting multiple stocks.
Jason Trennert, chief investment strategist at Strategas Research Partners and a friend of Jordan's for about 20 years, says Jordan's mastery of data and history is unmatched in the investment industry.
It makes him a hard guy to debate with, says Trennert. He'll be pulling out stats from 40 years ago about semiconductor stocks. You have absolutely no comeback.
The fund currently holds no banks or brokerage firms. Jordan piled into the finance sector in February and March, putting as much as 25 percent of his assets in banks, brokers, exchanges and even the Financial Select Sector SPDR exchange-traded fund. He sold all the positions by the end of August.
While many managers look only at company fundamentals, Jordan also closely follows the trading statistics of stocks he owns and frequently buys or sells portions of his positions based on such technical indicators. The fund can generate substantial taxable gains some years thanks to Jordan's frequent trading.
We're believers that nothing goes up in a straight line, he says. Things get oversold. Things get overbought. We may take some money off the table.
(Reporting by Aaron Pressman; editing by Tim Dobbyn)