Back door into housing recovery
Managers: Brandon Osten and Stephen Andersons, Venator Capital Management Fund: Venator Income Fund
Description: Invests in stocks and bonds, with a focus on yield and capital preservation Firm’s AUM: $190-million
Performance: 1-year: 20.1%; 3-year: 15.2%; Since Aug. 1, 2008, inception: 16.6% (annualized as of Jan. 31, 2012)
Fees: Management: 2% for Class A units, 1% for Class F units; Performance 10% (5% threshold)
Brandon Osten and Stephen Andersons pride themselves on finding most of their investment ideas internally, and they often have to look outside the box when it comes to playing themes such as the U.S. housing market recovery, improving North American auto sector or strong appetite for yield.
For example, since a U.S. housing recovery is already built into the share prices of homebuilders and lumber companies, the portfolio managers of the Venator Income Fund target names like Spectrum Brands Holdings Inc., which recently bought the door lock and bathroom fixture division of Stanley Black & Decker Inc.
“It’s sort of a back-door play into housing,” Osten said. “When you buy a house, you tend to change the locks.”
Sears Hometown and Outlet Stores Inc., which is held in the Venator Founders Fund, is another example.
“Houses get built and then nine months later, people buy appliances,” Osten said. “To the extent that everybody is betting on a housing recovery over the next 12 months, this company is really going to see the benefit of that later.”
Andersons adds: “You can buy these types of names with a defensive valuation.”
While the portfolio’s equity portion is focused on highquality, dividend-paying companies, the majority of the fund is in U.S. high-yield bonds. The managers often look for companies whose assets are underappreciated by the debt-rating services, which leaves the underlying bonds undervalued relative to other bonds with comparable yields.
Several casinos on the U.S. east coast present such an opportunity.
“New York’s plans for casinos to be built upstate are still tied up in the Senate. If they are approved in the next year or two, they won’t be built for the next four,” Osten said. “The real key there is to make sure our bonds mature in 2015 or 2016, because whatever business they lose, it will be after the bonds come due.”