Popular value fund manager Iben bets on Russia, gold
New York (Apr 8) With large bets on Russia and North American gold miners, one of the best performing stock pickers in the wake of the 2008 financial crisis is back with a new fund that reflects his deep aversion to following the crowd.
In the Kopernik Global All-Cap Fund, David Iben is following the same contrarian investing style he embraced between 2005 and 2012, when he was running the then-$2 billion Nuveen Global All Cap Fund and the $3.2 billion Nuveen Tradewinds Value Opportunity Fund.
Both funds bested 98 percent of their peers over the five years that ended in 2012, a performance has helped Iben's new fund attract $488 million since he launched it as the first product from his own money-management firm in November.
Investors in the fund should be prepared to go places where few others will tread. The fund has just 6.5 percent of its assets invested in the United States, compared to an average of 48 percent among world stock mid-cap value funds, according to Morningstar data, and is building up positions in emerging markets and in Japan, which have seen steep declines over the last six months.
"Things that are hated are more fun to buy than things that are loved," Iben said.
Case in point: Russia. The country's benchmark stock index has tumbled 17 percent year to date, largely after its move to annex Crimea sparked the most serious confrontation between Moscow and the West since the end of the Cold War.
At the same time, Iben has been building his position in some of the country's largest companies, including natural gas company Gazprom OAO, state-owned bank Sberbank OAO , and Moskovskaya Birzha OAO, the country's largest stock exchange.
Even with a slowing economy as a result of the Ukraine crisis and the threat of international sanctions, Russia is full of high-quality businesses and remains the world's largest energy exporter, he said.
"Russia was one of the cheapest markets on earth and it got cheaper. Right now people are very scared. While I'm not approving of what Russians are doing, the degree of fear and emotion has very little to do with the fundamentals," Iben said.
Investors who want to follow Iben into unloved parts of the globe will pay a high fee for it. Investors in Class A shares will pay a 5.75 percent sales charge and an annual fee of $1.35 per $100 invested, a level Morningstar considers high.
Iben, who once expected to become a veterinarian, has a small following among fund investors from his track record at Nuveen. He stepped away from the firm in 2012 to join a hedge fund run by former Fidelity Magellan Fund manager Jeffrey Vivnik, who owns the Tampa Bay Lightning hockey team and is a minority owner of the Boston Red Sox. That fund closed in June of last year after a period of underperformance.
Vivnik invested $20 million with Iben to start his new firm, Kopernik, named after the Renaissance astronomer better known by the Latin spelling Copernicus, who proposed the heliocentric model of the universe.
Investors may want to wait before following Iben to his new fund, said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.
While Iben's fund has returned 3.9 percent year to date - which puts him in the top 10 percent of world stock peers - its launch in the wake of last year's stock rally puts it at a disadvantage because Iben hasn't had an opportunity to take advantage of market downturns, Rosenbluth said.
"The market has moved higher in the last couple of years and even if (Iben) is trying to replicate what he had before, he's paying higher prices," Rosenbluth said.
Iben, for his part, says that he is willing to buy "whatever the market gives us." He loaded his portfolio with small-cap stocks after the 2001 dot com crash because they were attractively priced and now holds hardly any U.S. small-caps after the Russell 2000 benchmark jumped 31 percent last year.
He typically buys companies that are profitable, but almost all are cheap by typical metrics like price-to-earnings and book value. He looks for what he calls qualitative measures, such as whether the company is in a business with strong barriers to entry, if it is able to improve margins, and whether its product will still be necessary a decade from now.
Iben places just as strong an emphasis on when he sells. As one of the approximately 65 stocks in his portfolio rises, he will start selling incrementally until the position is closed out by the time a company reaches his target price. He begins selling once the stock moves up 10 percent, and sell more if shares continue to rise.
Along with Russia, his biggest overweights are in Canada and emerging markets. The concentration in Canada comes as a result of his positions in mining companies such as Newmont Mining Corp , Barrick Gold Corp and Centerra Gold Inc that rallied early this year after hitting five-year lows in the final months of 2013.
He is investing in uranium miners such as Cameco Corp , for instance, even while the price of the precious metal hovers near eight-year lows. Yet the completion of the so-called 'Megatons to Megawatts' program, during which the U.S. purchased more than 14,000 metric tons of uranium extracted from approximately 20,000 Russian nuclear warheads, will disrupt global supply over the next three years, Iben said.