Insights & Advice


The Burkenroad Fund Hunts for value in the Deep South

Finding small cap value stocks is a difficult job in the best of times. When you deliberately limit your horizons to just six states, south of the Mason-Dixon Line, the odds get even longer. Yet, Hancock Horizon’s Burkenroad Fund continually ranks in the top ten percent of funds in its class, according to Lipper Associates. Here’s how they do it.

“We look at book value to earnings, earnings surprise and revisions and relative strength,” explains David Lundgren, director of equities and research for this small cap value fund.

Lundgren has over 19 years experience in investment and was named one of the top 100 mutual fund managers in the country in 2006. He also manages two other funds for Hancock Horizon, according to the company: a value and a growth fund. Although the Burkenroad fund was down 25% last year it managed to beat its benchmark, the Russell 2000 small cap index by 9%, according to Lundgren. This year he has reclaimed those losses and then some, he says.

The fund confines its investments to Alabama, Florida, Georgia, Louisiana, Mississippi and Texas. On the surface, it would appear difficult to put together a track record of winners from that line-up, especially when competing with the internet age of high flying, low-priced, tech stocks. But Lundgren disagrees.
“Most business investment is focused on both the East and West Coasts. So a lot of our companies go unnoticed and we’re pretty good at unearthing value here. We’ve had close to 25 of our stocks acquired over the last eight years while the rest continue to produce solid earnings. Over time, Wall Street analysts recognize these companies; pick up coverage and institutions start owning them.”

That means price appreciation.

He says a lot of companies in the region are either industrial or energy related, especially in Louisiana and Texas, with a number of food companies in Mississippi and Alabama. There is also a significant auto manufacturing presence with a corresponding ripple affect on various sectors of the local economy. I asked him for a few examples.

“Take Amerisafe, Inc., a $300 million market cap provider of workers compensation insurance, it’s a great company that insures in hazardous areas like logging, oil and gas and agriculture with a solid management team,” says Lundgren, “or National Beverage Corporation, which is based in Florida and distributes off brands of cola like Shasta. It’s been a steady performer for us.”

Some of the research used in the Burkenroad Funds stock selection process is compiled by students from Tulane University and has been since 1993.

“About 100 MBAs and undergrads look for companies that are covered by five or less analysts on Wall Street. They tear apart the balance sheet, write really professional reports and then we screen them through a combination of quant, value, earnings and momentum,” Lundgren explained.

Morningstar indicates that although the fund’s A shares carry a load or sales charge, there is a no-load D share alternative (symbol HYBUX) although the expense ratio is somewhat high at 1.65% and it does have a 0.25% 12b-1 fee (see my column No Load or No Way).

Posted in The Fund House, The Retired Advisor