TIP SHEET: Rady Opportunistic Value Fund Eyes Power Recovery

25 May 2010 - Dow Jones Newswires - Christine Buurma 

U.S. electricity demand may be slumping, but the power industry isn't down for the count, according to Harry Rady, chief investment officer of Rady Asset Management, which manages the Rady Opportunistic Value Fund (ROVYX).

The fund, which has about $270 million in assets and invests roughly 19% of its assets in utilities, was launched six months ago, but La Jolla, Calif.-based Rady Asset Management has offered a similar strategy for 15 years for investors in separately managed accounts. Rady Opportunistic Value Fund invests in companies that appear to be undervalued based on the strength of their management teams, their earnings potential and other factors.

"We buy companies that are out of favor, but we're not going to go out and buy second- and third-tier companies," Rady said. "We buy dominant, best-of-breed companies in a given sector."

Although the fund has underperformed its benchmark, the Standard & Poor's 500 Index, in recent quarters, that's likely to change as the economy stabilizes and the well-established companies that comprise the fund's portfolio come back into favor, Rady said. The fund has fallen 4.36% over the past three months, underperforming the S&P 500, which declined 2.42%, according to data from Morningstar Inc. But over the past month, the fund declined 11.94%, compared with the S&P 500, which fell 11.62%, according to Morningstar.

Power companies are an ideal fit for the fund's portfolio, Rady said. The economic downturn has curbed the demand for electricity, particularly among large industrial users. But electricity demand is picking up as the economy recovers, leaving power companies poised to benefit. Utilities' returns are guaranteed by regulators through rate settlements, making the companies stable investments over the long term.

"Historically, utility stocks have traded at a significant premium to the market," Rady said. "We think that these stocks will go back to the multiples they've historically traded at."

Among the fund's holdings is NRG Energy Inc. (NRG), which has a large power generation business. NRG's assets include a nuclear power plant in Texas and several power plants fueled by natural gas. Those assets, which generate lower levels of heat-trapping gases than coal-fired plants do, could become more valuable if the U.S. places a cap on carbon-dioxide emissions.

The fund also invests in Exelon Corp. (EXC), one of the nation's largest nuclear power generators. Exelon has a diverse mix of power-related businesses, including a regulated utility, marketing, transmission and a so-called merchant power business that sells to the wholesale market.

"Most of the power companies we own have a combination of regulated and merchant power businesses," Rady said. "We want the stable cash flow stream that comes with the regulated business and the upside that comes with the merchant business."

FPL Group, Inc. (FPL) is also among the Rady Opportunistic Value Fund's holdings. FPL is the largest generator of wind power and solar power in the U.S., making the company well-positioned to capitalize on a federal limit on carbon dioxide emissions.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Contrarian Long/Short Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained by calling 877.302.7239. The prospectus should be read carefully before investing. The Contrarian Long/Short Fund is distributed by Northern Lights Distributors, LLC member FINRA/SIPC.

Harry Rady’s  “favorite picks,” should not be considered investment advice.