A Conversation with Jerry Jordan
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Jordan Opportunity Quarterly Newsletter editors chatted with Jerry Jordan in mid-July. Jerry discussed his investment philosophy, making sense of markets in emerging countries, and shared a few additional thoughts on the outlook between now and year’s end. What follows are some key topics covered during our conversation.
How does fund performance reflect the Jordan Opportunity investment philosophy?
This quarter’s good performance, and the poor performance we experienced last quarter is a good reflection of what we do. And what we do is to look for secular investment, that is; ideas that we can invest in on a thematic basis. And then we concentrate. We try to find the five or six big ideas that we like and we invest anywhere from 10-30% of the assets of our portfolio into those ideas, at the expense of what may be a number of other areas of the market.
Thoughts on investing in the beneficiaries of growth in emerging markets?
We’re believers that you should find out what you’re good at. And identifying the big trends is what we tend to be pretty good at. So, although we have essentially missed a lot of the international emerging market flow, we have played them through domestic holdings in the Fund to some extent. I had a debate with someone recently. It seems to me that the emerging market hasn’t been so much about the emerging market trade, than about a global sector trade. The difference is that in the US., Energy and raw materials represent about 11% of the S&P 500, whereas in Brazil, it might be 45% of their index, and in other parts of the emerging world, where the markets have been big in raw materials, the cyclical parts of their index are 50 percent of their index— and more. So, it wasn’t necessarily that you got Brazil right, it was that you got raw materials right. The S&P doesn’t have enough leverage for that. So, what we have done is bought into, over the past 5 years, the idea of global growth.
We invested in the beneficiaries of that global growth, where we knew they had Generally Accepted Accounting Practices for their accounting, management teams that we could see, call and meet with on a regular basis. We could trust them. If you go back and look, some of these emerging markets are just phenomenal; but you know, that is true of a lot of stocks.
What is the future of international markets?
There has been very little money that has gone into US equities. Much of the money has gone into international, and that’s what makes us worried. There maybe too many people on that side of the ship. And that might mean the ship’s going to have to roll a little bit—when everyone is buying the same thing, that’s a problem.
Thoughts on portfolio performance between now and year’s end.
A little more than a quarter of the Jordan Opportunity Fund portfolio is invested in a range of health care stocks, some aggressive growth-oriented stocks, some not aggressive; we’ve adopted a barbell strategy. The health care stocks and brokerage firms might be the best performing parts of the portfolio between now and the year’s end. I think that some of the parts of the portfolio that have been great might take a breather, and some of the parts that haven’t been as good will pick up the baton and keep running.
On selecting companies.
My father, who founded our firm, always espoused, “If you find a trend, buy the best company in the trend."
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The views in this report were those of the Fund manager as of June 30, 2007, and may not reflect his views on the date this report is first published or anytime thereafter. These views are intended to assist shareholders in understanding their investments in the Fund and do not constitute investment advice.