A fund that's not at market's mercy

By Tim Middleton

Some people were rallying long before the market started.

Jordan Opportunity Fund (JORDX) had spurted up 8.4% this year, as of April 30, putting it more than 13 percentage points ahead of the S&P 500 Index ($INX).

And that was no fluke. The fund's annual average return over the past three years has been 21.4%, likewise a 13-point advantage over the benchmark.

Even in 2007 -- you know, when the credit crunch hit and no one could make money -- the fund gained almost 26%. Consider that the next time you hear someone say they're down only a little and then console themselves that in a market like this one, that's not bad.

What's more, the Jordan fund doesn't prosper by finding undiscovered jewels in exotic places but by investing in the same sorts of large companies that frustrate so many others.

Growth in unusual areas

Two of the Jordan fund's largest positions are in United States Steel (X, news, msgs) and Schlumberger (SLB, news, msgs), each a venerable behemoth widely owned by pension and mutual funds. Stranger still, manager Jerry Jordan calls his portfolio a growth fund.

"I know, I know -- you're going to say U.S. Steel and Schlumberger are not growth stocks," Jordan said in an interview.

I was indeed going to say that, because industrial materials and oil-field services are boom-and-bust businesses. Classic growth stocks are steady earners.

But Jordan defines growth to include cyclical stocks if during each cycle they reach higher highs and higher lows. "That's as opposed to U.S. Steel in the 1990s, when (during) each cycle it went back to the same level, so there was never any growth in the business," he explains. "Schlumberger is growing earnings, revenue and units."

Jordan has demonstrated a remarkable ability to read the market's mind. He sold out of the energy sector at the beginning of 2006, and it badly lagged the market that year. He bought it back at the end of the year, and it now accounts for 28% of the fund's assets. He finished 2007 with his biggest position in Market Vector Gold Miners (GDX, news, msgs) but bailed out in early March. That exchange-traded fund has declined more than 20% since.

In recent weeks, Jordan has been buying stocks -- and not gold -- with bold hands. He regards his strength as gauging when stocks have been oversold, and he sees that condition now. "The bear market is over," he says.

And this theme-oriented investor has a new favorite: electric power.

Powerful picks

Long a private money manager, Hellman Jordan Management of Boston launched its mutual fund at the beginning of 2005, and its performance has ranked in the top tier of similar mutual funds from the beginning. For most of that time it operated in near anonymity; assets at the end of last year were a low $35.1 million.

But as the fund has popped up on big-winner tables, assets have started rolling in. They swelled to $62 million at the end of March and $97 million one month later. And Jordan has been investing the cash as fast as it comes in the door.

"In the last six weeks I've moved into ABB (ABB, news, msgs)," Jordan says. The Swiss engineering company provides power generation and distribution equipment globally. Jordan notes that electricity has become a choke point from Beijing to South Africa, whose mines had to be shut down at the end of last year when they ran out of power.

Another recent addition to Jordan's compact portfolio is SPX (SPW, news, msgs), a manufacturer of infrastructure products such as power transformers. "There are two pressing needs in the developing and, for that matter, developed world," Jordan says. "One is oil and gas. The other is electricity. Even the United States is going to have problems."

Jordan usually owns from 25 to 40 names, so even the smallest positions can have a big impact on performance. About 40% of the fund's assets go into the top 10 names, which currently include Google (GOOG, news, msgs), JA Solar Holdings (JASO, news, msgs) of China and Transocean (RIG, news, msgs), an offshore driller.

Financial follies

Jordan is a top-down strategist, sizing up global economic trends, identifying sectors and industries that will benefit and then buying the best names in that space -- companies that, in his words, are managed by "the best and brightest." If he foresees trouble ahead, he will shift more assets to cash, as he did last year.

The market's recent malaise, Jordan says, "was a typical cyclical bear market. It's an interruption in an up-cycle caused by too much inventory in one major part of the environment."

Which part? "Financials," Jordan says. "Financials had too much inventory, so they had to cut the price and have a fire sale, and it's still going on. In the early part of 2007 it was very apparent to us that banks and brokers and the mortgage folks still in business had way too much inventory that they had to get rid of. It was the same with technology in 2000 and energy in 1997."

Financials account for less than 6% of the fund's assets -- less even than its cash position.

More than half of its assets are targeted at energy, materials and industrials. "This is the dominant theme of this decade," Jordan says. And if the bear market has bottomed, as he believes, "the economy won't be far behind."

Continued: Volatility the right way

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