Smart Moves 'Energize' This Fund

03/29/2013 7:45 am EST

Focus: FUNDS

Russel Kinnel

Editor, Morningstar FundInvestor

The managers of this fund are staying cautious, but have recently added some energy picks to beef up returns, says Russel Kinnel of Morningstar FundInvestor.

Manning & Napier Pro-Blend Extnd Term S (MNBAX) has kept up the pace. This fund uses a flexible approach to asset allocation, staying with a range of 40% to 70% equities.

Senior managers, who average 17 years each at the firm, make asset-allocation shifts based on the firm’s macroeconomic outlook and the investment opportunities found by its equity and fixed-income analysts.

As of January 2013, the fund’s 57% equity stake was right around the moderate-allocation category norm, and just slightly below the fund’s ten-year average. The managers think valuations for the broad equity market aren’t overly appealing given that the economy is in a recovery, so they’ve stayed in the middle range of the fund’s possible equity allocation rather than go higher.

That said, the managers are cautious about certain parts of the fixed-income market. Given low yields, the fund has scaled back its exposure to Treasuries in recent years. They comprised just 8% of the fund’s fixed-income stake as of December, well below the Barclays US Aggregate Bond Index’s 36%.

Despite the managers’ concerns about reinvestment risk, they’ve maintained some exposure to Treasuries to balance the fund’s stake in high-yield bonds, which comprised 13% of fixed-income assets.

On the equity side, the managers have upped the fund’s energy exposure, which weighed on results in 2012. However, the managers think the tight supply-demand picture for oil makes many firms attractive, and added to beaten-up names in 2012 when valuations sank.

The fund’s foray into energy is not unprecedented: The sector was a major driver of returns in the mid-2000s. The managers significantly reduced their energy stake in 2007, a smart move that helped limit losses during the 2007-2009 market meltdown.

While some of the managers’ moves may take time to play out, the fund’s long-term record speaks for itself: its trailing ten- and 15-year returns through mid-February beat more than 90% of peers. Fees could be lower, but it’s a solid choice overall.

The 4-star mid-growth fund has a 9.7% ten-year return and an 8% 15-year return. Its prospectus net expense ratio is 1.15%.

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