Copyright 2002 Investor's Business Daily, Inc.

July 31, 2002, Wednesday

 

 

HEADLINE: Hancock Burkenroad Is A Classy Fund Likes 'Petrol Choppers' Finance students help fund dig up small caps, many in energy sector

 

BYLINE: By PAUL KATZEFF, Investor's Business Daily

 

The giant sequoias of the mutual fund industry are looked after by professional managers and hordes of researchers. Even smaller saplings in the fund forest are tended by pros. But one young sprout has a dedicated team of amateurs lending a hand. The $ 1.1 million Hancock Horizon Burkenroad Fund opened to public shareholders Dec. 31. The fund has its roots in a classroom exercise at Tulane University in New Orleans. That began in 1993. Up to 70% of its holdings still come from recommendations by student analysts. And those greenhorns must know a thing or two. The fund was down 2.73% this year going into Monday. That put it a whopping 22.44 percentage points ahead of the S&P 500 index. Its gain ranks No. 25 among all U.S. diversified stock funds, excluding multiple-share classes. It was No. 3 among small-cap blend funds. Southern Cooking Because the students can't be the fund's registered investment adviser, the fund is formally part of Hancock Horizon Funds in Gulfport, Miss. David Lundgren, a University of New Orleans graduate, is portfolio manager of the fund. He's also director of equities and research for Hancock Bank's trust department. The bank is not related to the redwood-size insurance firm Boston-based John Hancock Financial Services. The fund focuses on firms with less than $ 1 billion market capitalization in Texas, Louisiana, Mississippi, Alabama, Georgia and Florida. "We look for companies we call stocks under rocks," said Peter Ricchiuti, Tulane professor of finance. "That's because they have little or no analyst coverage." Ricchiuti's 140 students research regional firms in teams of three or four. "Once each team selects a company, they visit and meet the CFO, maybe the CEO too," Ricchiuti said. "They go to steel mills, offshore oil rigs, chicken processing plants. Then they produce a 20-page report that homes in on projected earnings." The class includes MBA students and undergraduate seniors. Its research is published as Burkenroad Reports. Using the Tulane research struck the bank as a way to help its small group of funds grow and attract assets to its banking services, Lundgren says. The funds employ three staff analysts. They use other third-party research besides the students'. The fund has 60 holdings. "A lot of Burkenroad names have ties to energy," Lundgren said. So the fund looks to its own analysts and other researchers to scout for names in other industries." Consumer discretionary is the fund's heaviest sector weighting, with 23% of fund assets. Industrials hold 18%. Energy and finance each hold 16%. Iberiabank alone accounted for 2.78% of fund holdings as of the latest report. "The bank is heavily exposed to energy," Lundgren said. "So our energy-related weighting is actually higher." Health care has 5% of fund assets, and tech holds 3%. On March 28, Ricchiuti's class rated ChemFirst a buy. That ranks above market outperform and market perform. Its share price was 26.75. Students reported that the Mississippi electronics and specialty chemicals firm could hit 30 within 12 months, based on projected earnings. The company has an IBD Earnings Per Share Rating of 83. On July 24, DuPont said it would buy the firm for $ 29.20 a share. Petroleum Helicopters is one of the fund's top performers. "The company's 270 choppers bring gear, food and men to oil rigs in the Gulf," Ricchiuti said. "It's the second-largest air force in the world, next to the U.S. military. It controls over 50% of the Gulf market." On Nov. 13, 2001, Burkenroad Reports rated the firm a market outperform. Its 19.15 share price was seen rising to 21.15. The stock, which has a scant 1 million share float, peaked at 33.50 on June 28. It was at 28.15 going into Monday. Its EPS was 81. Its Relative Price Strength from IBD was 94. Its Accumulative/Distribution Rating was only D. That's due to light institutional support, as with many names Burkenroad follows. Running Low Ricchiuti's students rated McMoRan Exploration a market underperform, which equates to a moderate sell, on Dec. 6. The stock was at 6.82. The energy exploration firm was 3.06 going into Monday. The fund does not own the stock. The fund has owned Cleco since the fund's inception. Burkenroad rated the Louisiana-based utility-holding company a market perform in Nov. 14. Its stock price was 20.23, with a 12-month target of 22.21. But the stock was at 11.86 going into Monday. "We liked it for conservative, income-oriented accounts," Ricchiuti said. "Its yield was 4.3%. That's decent in an industry going through consolidation. And the company may become a buyout candidate. But for now, like all energy firms, it got painted with the Enron brush." You can find Burkenroad Reports at www.burkenroad.org.