Neuberger Berman Genesis Fund

Fund Overview

Looks can be deceiving. This may not seem like a small-cap stock fund, but it is. Unlike many small-cap funds that sell off positions quickly, the Neuberger Berman Genesis fund holds onto many of its best-performing small-cap stocks well after they’ve grown into mid-caps, keeping some names in the portfolio for more than a decade.

As of April 04, 2012, the fund has assets totaling almost $12.06 billion invested in 151 different holdings. Its portfolio consists of small-cap and mid-cap stocks almost exclusively headquartered in the United States.

This fund doesn’t retire its winners. Management is only allowed to purchase small-cap stocks—those with a market value of less than $1.5 billion. It then holds the best of these picks for the long term. (The fund holds the average stock for six years.) One of its top five holdings, packaging products maker AptarGroup, has just about tripled its market value since the fund bought shares more than a decade ago. Managment seeks fast-growing small-company stocks. This often translates to buying companies with higher valuations. In the third quarter of 2010, the fund trimmed most of its top 25 holdings. The fund has returned 2.30 percent over the past year and 24.06 percent over the past three years.

The fund’s buy-and-hold strategy of nursing small-caps into mid-cap adulthood has made for an enduring long-term record. The fund ranks in the top quartile among similar funds for its five-, 10- and 15-year returns. The fund’s focus on holding stocks for the long term is complimented by management’s extensive experience. Co-managers Judy Vale and Bob D’Alelio have managed the fund a combined 31 years. After the fund’s assets declined in late 2008, the fund reopened to investors after being closed for seven years. In late 2010, the fund’s asset levels, $11 billion, were well above that of the typical small-cap fund. This reality makes the fund a less attractive play for investors looking for exposure only to small caps. But for investors interested in both small- and mid-cap exposure, this fund is worth further study. The fund has returned 5.97 percent over the past five years and 9.45 percent over the past decade.
 

Investment Strategy

Management seeks small- and mid-cap companies with steady free cash flow, secular growth that’s not dependent on the economy, and an industry-leading niche. Although the fund’s prospectus designates companies worth less than $2 billion as the fund’s primary targets for investment, more than half of its portfolio consists of mid-cap stocks. That’s because management often holds onto it original small cap investments for more than a decade until they grow into mid-caps.

Role in Portfolio

Morningstar calls this fund a supporting player.

Management

Management is just as long term as the fund’s strategy. The fund has four portfolio managers. Judy Vale and Robert D’Alelio have co-managed the fund for more than 14 years apiece. Michael Bowyer and Brett Reiner, both of whom have been analysts with the fund in years prior, have been associate managers since 2005.
 

Morningstar gives this fund a stewardship rating of C on a scale of A to F. “Neuberger’s distinctive investing culture is a plus, and this fund’s reasonable fees and manager investment are also pluses. However, a so-so fund board score, among other factors, keeps the fund’s overall stewardship score in middling territory,” Morningstar says.

Morningstar

Performance

The fund has returned 2.30 percent over the past year, 24.06 percent over the past three years, 5.97 percent over the past five years, and 9.45 percent over the past decade.
 

Hypothetical Growth of $10,000

Updated 03.31.2012

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Holdings

The fund is overweight in healthcare companies with nearly twice the allocation of similar funds. As of Sept. 30, 2010, about 55 percent of its holdings were considered mid-cap stocks. Much of the rest of its portfolio consisted of newer additions of small-cap stocks. The fund did not own any media or telecom companies in the third quarter of 2010.

Asset Allocation

	% Long	% Net
Cash	4.83	4.83
Stocks	88.25	88.25
Bonds	0.0	0.0
Other	0.83	0.83
Foreign Bonds	0.0	0.0
Foreign Stocks	6.09	6.09
Convertible	0.0	0.0
Preferred	0.0	0.0

Updated 12.31.2011

Top Holdings

Performance as of 03.31.2012

Portfolio as of 12.31.2011

	Ticker	YTD Return %	% Net Assets
State Str Instl Invt Tr Treas Mmkt Fd Inst	---	---	3.28
Church & Dwight Company, Inc.	CHD	8.78	2.83
AptarGroup, Inc.	ATR	5.85	2.8
Oceaneering International	OII	18.21	2.2
Compass Minerals International, Inc.	CMP	4.97	2.18

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Fees

Neuberger Berman Genesis Fund has an expense ratio of 1.05 percent.

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Risk

Because of its large asset base, the fund may lag other small-cap funds in the short term.

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