Interview: Rydex|SGI Value Manager Shares Market Views & Picks (SEVAX, THG, SD, GPOR, CSC)

24/7 Wall St.

Mid-Cap value investment strategies often work in various market cycles. Mid-cap stocks are in the sweet spot of future large companies and companies which also get acquired by private equity buyers or by larger competitors.  24/7 Wall St. was recently given the opportunity to interview Jim Schier, portfolio manager for the SGI SMIDValue strategy, and SGI Small Cap Value strategy.

SGI is the institutional name under investment manager Rydex|SGI, which manages about $23 billion in assets under management.  The SGI Mid Cap Value strategy offers access to the same investment team, and while nearing capacity, is currently open to new investors.

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On the retail side, Schier also manages an equally notable fund, Rydex Small Cap Value, which is open to new investors and recently attained a 3-year track record Rydex Small Cap Value Fund is rated 5-Stars by Morningstar; the Rydex Mid-Cap Value Fund (SEVAX) is rated 4-stars.

The explanation behind “nearing capacity” is rather simple.  The strategy is currently about $3 billion at SGI. The trick is to avoid owning a fund that is too large compared to its investment targets.  Since the fund has roughly 85 holdings, it is conceivable that the fund could have a real impact down the road on a stock simply by getting in and out of positions or when inflows or if redemptions hit in the future. The fund generally holds 65 to 100 positions.

Schier likes to play his cards close to the vest as he does not like to give away his investment strategy to outside managers and he does not want shadow trading around his entrance and exits of positions.  That being said, Schier did note that three areas offering great opportunity are property and casualty (P&C) insurance and energy, with a surprise sector interest in companies with significant public market exposure in various industries.  The surprise is that in the age of austerity, many companies selling to and servicing the federal government expect caution in orders.

In the realm of property and casualty insurance, or P&C, Schier likes The Hannover Insurance Group Inc. (NYSE: THG).  Despite being down about 30% from its highs in the last year, this one trades at a wide discount to peers.  It also pays a 3.2% dividend for you income seekers out there.  Schier credited them by saying, “They are effective operators.  They are gaining market share and their underwriting results are usually above peers.”  A recent acquisition of Chaucer in the United Kingdom is something the Schier expects will only add to earnings and profitability ahead.

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