Growth stock mutual funds
Interview: Needham Funds---Gallager, Vince---Fund Manager
>> welcome back. the price of crude oil in new york rose on concern that a strike in nigeria may disrupt oil exports from the sixth largest supplier to the u.s. crude gained 21 cents to finish at $30.40 a barrel. gold futures also moved up today. in fact, gold had its biggest gain in three weeks. gold rose $5.40 the ounce this afternoon, after the unexpected contraction in manufacturing pushed the dollar lower. when the dollar trades lower gold gets cheaper for overseas buyers. our next guest runs two growth stock mutual funds which permit him to short up to 25% of the fund’s holdings. he has increased his short positions in the past month. let’s ask him about that, vincent gal gerks portfolio manager at the needham growth and needham small-cap funds. good to see you.
>> nice to see you.
>> let’s start with that. that’s a lot of latitude, isn’t it. most fund managers don’t enjoy the opportunity to shorts as much as 25% of the fund.
>> true. mine we are very fortunate to have that flexibility.
>> that’s worked out well for you. so i want to ask you about your fund, the needham growth fund is up better than 20% year to date.
>> right.
>> beating the lus el 2000. have you made the bulk of that long or short?
>> long primarily. mine we’ve done very well over the past three months in particular, and we’ve done reasonably well on the short position, but i would say primarily with the appreciation in the long portfolio.
>> is that true for the other fund, too, the small-cap?
>> small-cap as well. that’s probably even been less short than the growth fund over the six-month period.
>> that’s a new and relatively small fund, right? $7 million.
>> yes, started a year ago may 22nd. and we are pleased to say we are up last year and we are up about 25% this year.
>> all right. so the latitude means you have a very carefully and specifica specificallyally managed fund. we’ve been doing a piece about what happens next now that we’ve finished the first half. we know the majority of wall street strategists are saying they look for an average of 7% more in the s&p going forward. would you sign onto that?
>> i would think 5% to 7% for the balance of the year would be reasonable. some―i know some of my colleagues believe there will be a major selloff here at some point in the next three months, and my thoughts on that would be that it might happen. who knows. but i would bet that we’ll probably muddle through with going sideways rather than down or up during the balance of the year.
>> so strategically you are increasing cash, increasing your short positions?
>> yes. we have been over the past month.
>> so if you were to parse out the rest of the year then, you would be putting positions in place now that you would expect to hold?
>> nobody signs onto that absolutely but is that your expectation?
>> in our investing in the long side we tend to invest for tax efficiency. which means we like to hold stocks for at least 12 months to generate capital gains. so our philosophy would be with our long holdings the majority of them to keep them in place the balance of the year.
>> do you get the sense that investors’ attitudes towards shorting has changed somewhat?
>> think there is a more positive attitude toward shorting in the last few years, particularly because we’ve had such a tough market over the last three years.
and i think it brings a certain efficiency to the market that was not there historically.
>> let me ask you about what you are buying. sarah dine is an advanced ceramics products company, industrial and defense applications, up 128% already year to date, small-cap, only $180 million market cap. if it’s up 128, wouldn’t you say investors have missed the move this time around?
>> we still feel positive about the company. their technology, ceramic technology can replace a number of traditional products, mainly steel products in defense situations such as nose cones which they make for rockets. more particularly they provide the special ops for the u.s. military with their bustly proof vests.
>> so this is a play dependent on continued military spending.
>> part of it is military. they also have a joint venture with 3m company in minneapolis to provide braces that are basi basically invisible braces for teeth, instead of the steel brace configuration, you basically have a clear ceramic particle that fits on each tooth and is wired in on that basis so it’s a lot more attractive.
>> you have some sort of special relationship with them?
>> we’ve don banking business with them. we’ve done a secondary offering for them recently.
>> tell us about pem star, not a household company. trades under $5. street doesn’t like it. is this a look at a stock that might work well in a managed fund but might be risky for an individual?
>> it wasn’t risky if you got in at $1.50 or $1.75 a share. we know the contract manufacturing space as a firm. we like the management at this company very much. we think though revenues were down slightly in the first quarter of this year they have been trending up sequentially. we think they are going to be one of the major winners in the space.
>> last word, sounds like you know what you are talking about given the performance of the fund.
>> this is vint gallagher, fund manager at needham funds.
