Fund Times: Muhlenkamp Assesses Chance of a 'Soft Landing'

It's a rare case when a prominent manager acknowledges that part of his or her investment strategy is based on current macroeconomic thinking, not solely on fundamental research or a company's growth potential. But investor Ron Muhlenkamp has long done just that, and as his recent third-quarter update to shareholders of  Muhlenkamp Fund (MUHLX) shows, he'll speak frankly with investors about his view on the state of the economy, the stock market, and today's headline-grabbing issues.

Muhlenkamp begins his recent quarterly update with a look back at the past few years in the market. Citing a strong economic recovery from 2002 to 2005 coupled with a rise in short-term rates, he notes that inflationary fears slowly crept into the market. Rising commodity prices did nothing but stoke those concerns, yet Muhlenkamp says that one of the true causes of inflation--the federal government printing money faster than the economy grows--remained well under wraps. In short, he didn't fear inflation as much as the market did.

Market fears change quickly, though, and Muhlenkamp believes the market now reflects a different scenario: a possible recession. Factors such as the recent pause by the Fed on short-term rates and declining commodity prices caused utilities, consumer-staples, and health-care companies to assume market leadership this summer--all of which Muhlenkamp says would make sense in the face of a possible recession.

Muhlenkamp stops short of agreeing that now is a good time to load up on defensive stocks. Though he acknowledges that Fed rate-tightening could cause a recession--most attempts by the Fed to engineer a 'soft-landing' over the past 50 years have failed--he believes it could be different this time as the latest data show recession drivers dissipating. This thinking drives his thesis that 'it's a good time to be investing in the companies we own.' Indeed, he's keeping one of his most economically sensitive stocks, home lender  Countrywide Financial (CFC), as a top-10 position in the portfolio.

Powershares to Sponsor Cubes
This morning, the  Nasdaq Stock Market  (NDAQ) announced that it will transfer sponsorship rights of its six popular ETFs to PowerShares, a unit of  Amvescap PLC (AVZ). Though the deal must obtain regulatory approvals before it clears, Nasdaq expects it to close by June of next year. Notably, the deal includes the market's most popular ETF,  Nasdaq-100 Index Tracking Stock , which has $17.4 billion in assets and whose shares are commonly called 'Cubes.' In today's press release, Nasdaq Global Funds CEO John Jacobs said that the deal will be helpful in 'providing compelling portfolios and investment tools for advisers and investors.' In other words, advisors who sell PowerShares ETFs now have more options to sell to investors.

RiverSource Tries to Improve a Struggling Growth Fund
Minneapolis-based RiverSource Investments announced yesterday a management change at its  Mid Cap Growth Fund . Duncan Evered, who led this offering since February 2000, is being replaced by John Schonberg, a senior equity leader who will run the fund on an interim basis. Schonberg will work with RiverSource's CIO to find a permanent manager for the fund.

We liked Evered's strategy. He preferred firms whose growth was more stable year over year, a strategy that steered the fund to very respectable returns in both 2001 and 2002. But performance since then has been a tough pill for shareholders to swallow, as more speculative fare ruled the roost starting in 2003. That shift caused returns to drop into the mid-growth category's bottom quintile in 2003 and 2004.

American Century's CIO to Step Down in Early 2007
American Century Investments announced Monday that executive vice president and chief investment officer Mark Mallon will retire in February 2007. Mallon has worked at American Century for nearly a decade, including more than four years as the company's lead investment chief. In the coming months, Mallon will work on a transition plan with his successor, recent American Century hire Enrique Chang. Though Chang has worked at the Kansas City-based firm only since March of this year, his previous 18 years of industry experience include a four-year stint as president and CIO at Munder Capital Management.

Van Eck Launches Two More ETFs
Van Eck, which earlier this year launched an ETF tracking gold-mining stocks, has found more trends to glom on to. The small firm, which has both traditional as well as exchange-traded funds, has launched the Market Vectors Environmental Services (EVX) and the Market Vectors Steel (SLX) ETFs. The environmental-services fund tracks a basket of nearly 25 securities, representing companies whose primary business is waste management. Likewise, the steel industry ETF is true to its name, as it invests in 39 steel producers across the globe.

It's no coincidence this launch comes after these industries have been on hot streaks in recent years. That's usually the worst time to invest in an industry or sector, though, as such streaks are bound to cool off eventually. For example, Van Eck launched its Market Vectors Gold Miners ETF (GDX) on May 16, 2006, as gold's strong bull run peaked. From its inception through September 30, however, this ETF's shares were already down more than 10%.