"Of Mutual Interest"-Bradford Evans of the Heartland Value Plus Fund
Tuesday, August 05, 2008PAUL KANGAS: In tonight's of mutual interest segment, we'll look at a fund that's managed to handily beat its benchmark in the small cap value category for the past five years. That fund is Heartland Value Plus and its winning streak is still going strong with a gain of better than 7.5 percent for the year to date and close to that for the past year. By contrast the Russell 2000 value index shows losses for both those periods. Bradford Evans is the lead portfolio manager of Heartland Value Plus and he joins us now from Chicago. Welcome to NIGHTLY BUSINESS REPORT Brad.
BRADFORD EVANS, PORTFOLIO MANAGER, HEARTLAND VALUE PLUS FUND: Hey, Paul, thanks for having me.
KANGAS: First, a lot of value managers have been burned in this market. How has your team been able to find stocks that have outperformed?
EVANS: Paul, it's really a function of the Heartland process, which is a disciplined, valuation-driven process where we focus on bargain hunting, looking for companies that are undervalued based on our metrics of low P/E, low price to cash flow, low price to book value, looking for companies with strong balance sheets with a (INAUDIBLE), looking for companies that have a reason for which we think the market will rediscover a company for improving prospects into the future.
KANGAS: Now you've had a high proportion of energy stocks in your portfolio. With oil's price moving so sharply lower lately, are you thinking of reducing your position in energy?
EVANS: Paul, we still remain with energy at this point. The group has been punished as you have rightly noted with commodity prices falling. Frankly, I think the group is oversold at this point. When you look at what's happening in the space today, the group looks very attractive based on long-term commodity prices for oil. Oil of say roughly $80 to $85 a barrel and from natural gas roughly $8 to $8.50 per million cubic foot.
KANGAS: All right. Now you've been very negative on the financial group saying that you don't expect it to stabilize for at least six months. Would that include the smaller regional and community banks?
EVANS: Paul, right now it looks as though the group has had a decent bounce off of its lows. What we're very concerned about right now is most of the credit quality concerns surrounding the community banks are centered in residential construction, land development and lot loans. We have not seen any -- at this point any proliferation of credit trends into what will likely become credit issues in C and I loans, commercial and industrial loans, commercial real estate and perhaps even prime mortgage.
KANGAS: OK. I do understand that you like one financial stock, Asset Capital Corporation because it benefits from an increase in loan delinquencies. We have less than a minute left. Explain that.
EVANS: Paul, Asset acceptance is a buyer of defaults (INAUDIBLE) consumer (INAUDIBLE) from credit card companies like American Express and Capital One. The company basically acquires the portfolios at deep discounts and then goes about their business by collecting upon those defaulted securities. Right now there is a huge supply of those defaulted portfolios on the market and that's driving prices down and returns up for asset acceptance over the next year or two.
KANGAS: Do you own AACC, which is the trading symbol?
EVANS: We own it in the fund, but I do not own it personally.
KANGAS: So indirectly you do.
EVANS: Yes, sir.
KANGAS: Brad, I want to thank you very much for sharing your insights with us. My guest, Bradford Evans of the Heartland Value Plus Fund.
