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When Steve Lehman, portfolio manager of the Federated Market Opportunity Fund, looks for securities to invest in he prefers a contrarian value point of view finding investment opportunities.

Federated's Market Opportunity Fund,(800-341-7400), has only been around since the end of last year but it's not a brand new fund. It's a clone of a sub-advised fund that Lehman has been managing for the past four years giving it an edge over brand new-to-the-market funds. As for it's performance, at the end of May, the fund was up 15.64 percent, year-to-date. That outperforms both of its benchmarks, the S & P 500, down 4.6 percent as of that date, and the Russell Mid-Cap Value Index, up 10.14 percent.

What's interesting about this fund is its blend of securities. "I don't own any straight preferred stocks. This portfolio owns only common stocks and convertible stocks and bonds," says Lehman.

And, right along with holdings like Suiza Foods convertible Preferred, and the Kerr-McGee convertible into Devon, you'll find REITs, (about 21 percent of the portfolio); utilities, (13 percent); energy stocks (10.4 percent); basic materials companies (9.7 percent); consumer staples (9.1 percent); but nothing in technology or telecommunications.

Here's more about the fund from Lehman:

Q: Why nothing in telecommunications and technology?

Lehman:I think technology, in general, is quite misunderstood by investors. They seem to still be enamored as technology advances but aren't differentiating between technological advances and the investment appeal of the companies that make the products. Price cutting is rampant, there's a glut of capacity and key products can theoretically become obsolete overnight. Plus, these companies do not generate free cash flow -- they have to take their cash flow and reinvest it to continue to try to stay competitive.

Q: What's the appeal of REITs?

Lehman: REITs have also been misunderstood by investors in that they are somehow misperceived as being tax sheltered investments. Investors may recall the limited partnership real estate scandals experienced 20 years ago, but that's not today's REIT. Since the early 1990s, many of the finest companies have gone public as REITs and they own some of the best commercial real estate in the country.

REITs are significantly under owned, and they offer stable cash flows at times of plummeting earnings estimations for many other companies. They also have very high dividend yields, on avenge about seven percent; with earnings growth this year estimated at seven or eight percent.

Camden Property Trust, is one of our top five holdings, it's a Boston-based REIT that has a history going back decades and has a dividend yield of about 7.3 percent.

Q: Why do you like convertibles?

Lehman: Because they generally provide an attractive level of income when common shares of the company may pay little or no dividends. So Suiza Foods, for instance, doesn't pay dividends on its common stock. But, I can invest in Suiza's convertible and earn a current return of at least six percent and also participate in the underlying moves of the common stock. So, if Suiza's common stock rises, the price of the convertible will rise as well, and, in the meantime, I'll be getting a current income flow.

Q: You don't own any consumer discretionary stocks. Why not?

Lehman: Because the consumer balance sheet is really quite distressed. Consumers have less equity in their homes than they've ever had, and, they have more debt going into an economic decline than they've ever had. For those reasons, I want minimal exposure.

Q: Will the portfolio be actively traded?

Lehman: Yes. I believe in active management and think that portfolio turnover ought to be much higher in this environment than it has been. Buy and hold and indexing worked fine in a bull market but we're in a much more challenging---and volatile--- period. Consequently, I think investors need to be nimble and opportunistic, and, more unconventional and creative in pursuing profits in the stock market.

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