Wanted: Managers Who Eat Their Own Cooking

Tony Soslow, chief investment officer of Global Capital Management, has a rather straightforward goal for the Quaker Mid-Cap Value Fund and the Small to Mid-Cap Core Equity strategy in the portfolios he manages for his firm: He wants to beat the market.

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Tony Soslow, chief investment officer of Global Capital Management, has a rather straightforward goal for the Quaker Mid-Cap Value Fund and the Small to Mid-Cap Core Equity strategy in the portfolios he manages for his firm: He wants to beat the market.

Sound simple? Not quite. Soslow took over as manager of the fund with John Hammerschmidt, Philip Mendelsohn and Marc Dent last May when the fund changed its mandate to target more institutional investors. At the time the fund was struggling, returning only 5.6% for 2005, compared with 24.9% in 2004 and 60.5% in 2003.

Little more than a year after Solsow and his team have been at the helm, the fund has edged its way into the top 10% in its category (for the first quarter of this year); it upped its three-year rating from rating agency Morningstar to 4-stars from 3-stars; and it lowered its expense ratio from 2.01% to 1.66%. Soslow says the fund is up 24% since Global Capital took over, a feat he credits to his low-beta, high quality approach. The team focuses on high-quality, underperforming businesses, meaning the fund outperforms in down markets. According to Morningstar, the fund is up 2.02% year-to-date.

“Most managers select stocks by exclusion,” he says, “we’re looking for funds with positive characteristics as well as business prospects.” Investing quality mitigates the fund’s risks, he says, while compelling business prospects increase returns. The bottom line: The team looks for “great entrepreneurial managers that eat their own cooking.”

While other funds are still going gaga over energy, utilities and financials, the Quaker Mid-Cap Value Fund counts among its top 10 holdings a single oil/gas company. While Soslow believes companies in the energy and material category are still undervalued, the fund is no longer adding those positions.

One thing that hasn’t changes is the fund’s interest in technology, which comprises 15.4% of the portfolio, behind financials and consumer discretionary goods. Soslow likes the Dallas-based IT outsourcing firm Affiliated Computer Systems, OmniVision Technologies and KLA-Tencor. Still, Soslow is cautious, saying, “we rent tech stocks rather than own them.”

Despite dedicating 17.9% of the fund’s portfolio to financials, the fund counts only one bank, Zions Bancorporation, in the portfolio. Instead the managers have been adding insurance companies like Protective Life, HCC Insurance Holdings, W.R. Berkeley, which comprise three of the portfolio’s top 10 holdings. “The bad news is we’re not as diversified in the financial sector – we’re under bank and under brokerage,” Soslow says, adding, “but we still have a successful portfolio.”

When it comes to consumer durables, tweencentric accessories chain Claire’s tops Soslow’s list, along with Oshkosh Truck, WRC Worldwide – formerly Yellow Freight Truck – and Sherwin Williams. Of Sherwin Williams, which holds 3.02% of the portfolio’s assets at number five, he says, “people think it’s strange to get excited about paint, but it’s a 100 year-old company that trades at a low per earnings ratio. Plus, China is a big place to paint.”

Though once a former manager of the now defunct Right Time Social Fund, a socially responsible fund, Soslow is now longer interested in the SRI world of investing. Asked why he got out of the SRI biz, Soslow blames the area’s lack of standardization.