A Fund Manager Is Born

Randall Eley ranked No. 1 on the "A" list of all U.S. equity managers last year, but can he duplicate that stellar performance managing Eugene Profit's new mutual fund?:

solid dividend record, one that shows a company willing to maintain regular payouts to shareholders. Of course, dividend increases are even better. Preferably, though, Eley’s choice will pay a dividend that exceeds the S&P 500 average, currently a bit under 2%. “You want the sense that management feels business is not only good, but has good prospects going forward, and this is certainly one way of seeing that,” he says. That’s a rule that was certainly on his mind when Eley picked up AT&T late in 1996. Ma Bell may have had a turbulent year (see “Ma Bell Goes to War,” Moneywise, March 1997). What Eley saw, nevertheless, was a stock with a solid dividend record, and a 3.2% yield to cushion his fund in case AT&T’s restructuring took a long time to boost earnings.

Mulling over price/earnings ratios gives Eley an idea of just how the stock market has thrown itself at a stock or neglected it altogether, and how much of a premium the investing world has tied to a company’s profits. A high ratio relative to the S&P 500 and to the company’s industry, no matter how good business is, might make Eley think twice about adding a stock to his portfolio. And, a discount to the S&P 500 and other competitors might signal a bargain to be had. Debt levels are another consideration that Eley examines, a figure that’s as easy as reading a company’s balance sheet. “We don’t want an investment’s total debt level to be significantly above 45% because, as we know, money paid to creditors is cash that could be better spent on day-to-day operations or increasing shareholder value,” he reasons.

Following Profit Lomax’s game plan, you get a sense of just what’s happened to the stock market over the last year, and what bets major players might be making. Lomax’s largest industrial position is in energy stocks, where oil producers Chevron and Exxon constitute holdings that make up almost 10% of his portfolio. Eley looks for energy companies to weather any downfall in earnings over the next year, a feat he feels will help boost their performance. One favorite in the oil sector is Chevron, which Eley has held since 1991, when he bought in at $34.50 a share. Chevron’s 3.2% dividend is higher than the S&P 500 average of 2%, and with oil prices stabilizing and U.S. consumption rising, it’s one stake Profit Lomax should see rise, according to Eley.

It’s a steady hand like Eley’s that set Eugene Profit to dreaming when the two first met a little over a year ago. While networking at a seminar thrown by Washington, D.C., broker Lenda Washington, Profit and Eley crossed paths and immediately plugged into their Yale ties–Profit, having graduated from the Ivy League school in the mid-’80s. Profit’s longterm goals had centered on tapping into the retail investing market, what professionals tend to call financial goods and services earmarked for individual investors. The minute they met, Profit knew a mutual fund

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