Manning & Napier Goes Bearish on U.S.

• ByDanielle Kost, Deputy Managing Editor, Life and Money
• On 5:00 am EST, Wednesday November 4, 2009

FAIRPORT, N.Y. (TheStreet) -- Christian Andreach, a managing director at Manning & Napier Advisors, says his team is focusing on American companies that benefit from foreign demand, especially those in technology and health care.

The $1 billion Manning & Napier Equity Series Fund, which is rated four stars by Morningstar, has returned 30% this year, outperforming the 19% advance of the S&P 500 Index. The fund has risen 4.2% annually, on average, for the past five years, beating 92% of its peers.

Welcome to the TheStreet.com's "Fund Manager Five Spot," where America's top mutual fund managers give their best stock picks during a rapid-fire Q&A.

Are you a bull or a bear?

Andreach: We don't place our focus on setting top-down targets for the indices. Rather, we employ a bottom-up strategy to populate the portfolio with individual investments that fit both our investment strategies and pricing disciplines. That said, we've seen a sharp rally from the March lows and while the environment suggests a better opportunity in stocks relative to bonds, we've probably reached a point where stock picking and sector rotation will be much more important than it has been over the past several months.

Importantly, for some time we have been focused on seeking exposure to companies that will benefit from growth outside the U.S. given that high levels of consumer debt and potentially restrictive fiscal policy over the intermediate-term will likely cap the rate of growth in the U.S.

What is your top stock pick?

Andreach: One stock we like right now is Monsanto. We believe you'll see continued demand for protein out of the developing world and this, coupled with existing biofuel mandates, should lead to upward pressure on grain demand. Because it's difficult to expand your land base, you need to get ever-increasing yields from the acreage you have. This plays directly to Monsanto's strength in providing products that help increase yields and reduce farmers' growing costs. While the stock has been held back by issues, we believe the company's growth trajectory should improve as we work our way through 2010.

What is your top under-the-radar pick?

Andreach: One relatively small company that we own is Eclipsys. It's a health-care information-technology company that develops and licenses software to hospitals. The software is designed to simultaneously improve the quality of health care through reduced complexity, while reducing the cost of health-care delivery. The Obama administration has committed significant funds to health-care technology companies in the stimulus plans, and we believe that Eclipsys will benefit from continued adoption of its products. While the shares have performed well during 2009, we continue to see attractive upside.

What is your favorite sector?

Andreach: We are currently most heavily exposed to technology and health care. With technology, we were able to capitalize on some pretty attractive opportunities as the market was falling early this year. It was truly a time when the baby was being thrown out with the bathwater. Broadly speaking, we see our holdings in the sector as being strong secular growers that sell at attractive valuations and possess true global footprints. As foreign markets continue to expand, our technology holdings should benefit.

With health care, we have certain themes that we're operating against. Chief among these are that we will see increased adoption of information technology and diagnostics to improve patient care while reducing health-care delivery costs. While less uniform than tech, we also have pretty compelling exposure to foreign markets among our health-care holdings as well.

What sector or stock would you avoid?

Andreach: We've been avoiding adding bank exposure to our portfolios. We're still working through the process of getting the banks healthy. Credit quality and loan delinquencies are still rising across the credit spectrum and the yield curve probably won't be getting a lot more favorable as we go forward. Where we have exposure to financials, we've tended to focus on those companies that have attractive fee-based businesses.

-- Reported by Danielle Kost in Boston.

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