GRANUM VALUE

A little hedging adds pizzazz to this value fund

Walter Harrison, one of the team of managers on the Granum Value Fund, (888-547-2686), has been in the money business for nearly 30 years. And, a manager on the fund since it began in 1997. Ask him what the past three decades have taught him about investing and he will tell you to "buy value companies", and, to keep your eye on the market as a whole, as well. Why? Because of the risks in both.

"We are value buyers. But, we also know that at times, when the market has a strong move one way or the other that influences the vast preponderance of stocks, we try to hedge out that market risk," explains Harrison.

The hedging strategy Harrison is currently using in the fund is to buy puts on the S & P 500. ( A "put" is short for "put option". Those employing such a strategy think that the market, in this case as represented by the S & P 500 Index, will fall from its current level to a lower one within a specific period of time.) That strategy, combined with his stock picks seem to be working: Through June 30, the Granum Value Fund was up 6.6 percent, well ahead of the average multi-cap value fund's performance of 0.77 percent, according to Lipper.

Here's more from Harrison about the fund:

Q: Aside from the ability to hedge, what sets the Granum Value fund apart from other types of value funds?

Harrison: A couple of things. One is that we are not deep value investors. Then, one of our key premises has always been that growth is a legitimate component of value. But we are very cherry when it comes to assigning long term growth rates and don't want to pay very much for it.

Q: This is a multi-cap fund with your largest holding Fannie Mae. What's the smallest company in the fund's portfolio?

Harrison: Lakes Gaming, it's minuscule with a market cap of about $100 million.

We think that the gaming industry is a lot more stable an industry than a lot of people give it credit for. And it's expanding pretty rapidly. One reason for that expansion is that gaming is a good way for states to get revenue.

Q: What are some of the stocks that have been kicking up the fund's performance?

Harrison: Computer Associates. It's up 69 percent on the year. Forest City Enterprises, our seventh largest holding, is a real estate management company and up 22 percent this year. And, Redwood Trust, which is a REIT. They do jumbo mortgages and that stock is up 20 percent.

Q: How about a company that's been disappointing?

Harrison:Teva Pharmaceuticals. It's down 13 percent.

Teva is an Israeli company that we got involved with some years ago because it's a generic way to play the generic pharmaceutical business. But we still like it and are looking for the earnings to increase next year.

Q: What does it take for you to sell a stock in the fund?

Harrison:The simplest thing is if it quickly gets to the target that we've set. But that usually doesn't happen.

What we do is set our target price out say 24 months and if we don't see the stock moving appreciably forward, we would consider selling it. Another reason would be if the fundamentals of the company deteriorate.

Q: Going forward and over the short-term, what kind of returns do you think investors ought to look for from their equity investments?

Harrison: During the last century, returns were something in the neighborhood of 11 percent, four percent of which was dividends. Now, dividends are down to about two percent and my feeling is to would look for about seven percent rolling forward.