This Recovery Shaping Up Like the Last

Mike Breen: Greetings. This is Mike Breen from Morningstar, and I'm here with Frank Sustersic of the Turner Emerging Growth Fund, not only one of the best small growth funds in our database but has one of the best long-term records of any growth fund.

Welcome, Frank.

Frank Sustersic: Thank you.

Breen: How are you?

Sustersic: Good.

Breen: We were just chatting a little bit, and you were talking about some parallels with the macroeconomic situation, what you see as some past times, maybe 2002. Maybe you could highlight what you've been seeing at that level and contrast it with the past.

Sustersic: Sure. This year is repeating itself or mimicking the '02, '03 experience a lot. '02 was a really ugly recession, and then in November '02 the macro and the market started anticipating a recovery actually before the individual companies did.

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This year is very similar. We saw the market bottom in March and April of this year. It's interesting speaking with companies' management teams at conferences and on calls. They didn't really see a recovery at that point. There was still a lot of pessimism out there.

But now the capital markets started showing improvements, especially in the credit and equity markets, and then some stabilization, normal activity resuming.

Now we've seen, speaking with companies' management teams, July/August we were starting to see several companies, be it companies in the semiconductor industry, or the auto industry or chemical industry, we're starting to see a much better outlook, resumption of normal demand trends.

Breen: You look for firms with accelerating earnings growth patterns, niche market leaders. What challenges have you had, in a situation where they're coming off of a low base or losses as opposed to building on past gains?

Separating the wheat from the chaff, what are the challenges in determining what's just a bounce-back from a bad '08 versus some sustainable characteristics?

Sustersic: Right, right. Again, it's looking past at prior recessions and then trying to anticipate and trying to understand what is more of a structural issue with an industry and what is more of a short-term issue as far as the major recession we had last year.

For the most part it's difficult, the extreme pessimism and the shutdown in the capital markets and how it affected so many different industries the last year. You have to remember this is probably a three or four standard deviation event last year that we went through.

I do think with the amount of stimulus activity that we've had from the government, and the Treasury, and the Federal Reserve, and on a global scale that we're seeing a resumption in normal activity.