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TIP SHEET: Manning & Napier Fund Into Selective Equities

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02/13/2012 | 09:15pm CEST

--Moderately overweight on equities

--Favors stocks whose growth prospects not heavily reliant on Europe, macroeconomic environment

--Increases exposure to Google, Amazon, Time Warner

   By Amy Or 

January's equities rally may have prompted some investors to pile back into the asset class, but Manning & Napier's investment manager is cautious, especially regarding what to buy.

"We are biased towards companies that have unique growth drivers that would divorce them from what's going on in Europe," said Christian Andreach, co-head of global equities at Manning & Napier, and one of several managers of the Pro-Blend Extended Term Series (MNBAX). "We'd like to see rotation into companies that have compelling and identifiable growth tailwinds and are not dependent on government spending and cyclical consumer spending. In other words, companies who control their own destiny."

Equities indices, like the S&P 500 and the Dow Jones Industrial Average, have risen about 5% so far this year and in a rather stable trajectory, as investors shift their focus onto company fundamentals and away from the global economic slowdown and Europe's sovereign debt crisis. The rally prompted a few seasoned managers to preach the benefits of owning stock.

Last week, money manager BlackRock Inc. (>> BlackRock, Inc.) Chief Executive Larry Fink said he thinks investors should "be 100% invested in equities" on their low valuations and high dividend yields, while billionaire investors Warren Buffett said owning equities are far better over the long term than bonds or gold--two assets that "enjoy maximum popularity at peaks of fear."

The Pro-Blend Extended Term Series doesn't have as aggressive an attitude toward equities like some seasoned investment managers. It is a $1.2 billion lifestyle fund which receives a four star rating from Morningstar and three stars from S&P Capital IQ. It is moderately overweight with a 58% allocation to equities. Bonds, principally intermediate-term fixed income instruments, account for just over a third of the assets. The fund has a mandate to keep equities within the 40%-70% range.

"There's no real big asset allocation call," Andreach said.

Prudent stock selection, coupled with infrequent stock turnover, allowed the fund to consistently outperform peers. In a 3-year timeframe, the fund was up 14.4% over other asset allocation funds' 13.7%, S&P Capital IQ said. The margin widened to one percentage point when considering performance over the last 10 years. In a 5-year timeframe, the fund was up 2.93%, 0.85 percentage points better than its category.

Catering to investors with a seven to 20 year investment horizon, the fund has recently increased exposure to names like Google Inc. (>> Google Inc), Amazon.com Inc. (>> Amazon.com, Inc.) and Time Warner Inc. (>> Time Warner Inc.), believing these companies have excelled in their traditional business, and have much room for growth providing media content.

"Content becomes much more valuable. The days of a cable company just making money off laying the cable lines are over," he said. "Time Warner has tremendous media content, 10% free cash flow yield and growth in their ability to command higher pricing."

S&P Capital IQ mutual fund analyst Todd Rosenbluth said many of the stocks the fund holds, including Time Warner, Walt Disney Co. (>> The Walt Disney Company) and Hess Corp. (>> Hess Corp.), are undervalued stocks that are very attractive in this low interest rate environment.

But Rosenbluth said compared to peers, Manning & Napier's fund generates less income.

"Google, for example, is not a dividend paying stock," he said. "Also, the fund has more equities than peers, resulting in less yield."

Andreach said its fund would be a good fit to investors whose "retirement, while not an immediate concern for them, is at least near enough on the time horizon that they seek some degree of long term capital appreciation."

-By Amy Or, Dow Jones Newswires, +1 212 416 3142, amy.or@dowjones.com

(TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.)

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