"We continue to believe that the commodity companies, the resource companies, will outperform. We continue to emphasize them in the portfolio. We also like the health-care sector and have a number of interesting companies in the health-care field. And then we're deep value investors."
Gissen says that his plays are based in part on the continuing concern investors have about holding dollar- or currency-denominated resources as opposed to hard assets. That has driven people all over the world to hold gold, silver, platinum, palladium and other metals, he says.
"What the media doesn't spend enough time focusing on is supply," he says. "We visit a lot of the companies' operations. And it's clear to us that finding, exploring, getting permitted and getting into production in order to produce commodities is increasingly expensive, is increasingly politically risky and takes increasing amounts of money. And therefore, in order to produce the copper, tin, lead, molybdenum, coal, uranium that the world demands-and that demand is increasing-it gets increasingly risky, difficult and expensive. That portion of the equation does not get a lot of attention. How difficult it actually is to produce the commodities that the world demands."
With great success here, however, comes great risk, says Morningstar. Part of that 137% increase in 2009 was attributable to the fund's bounce back from a wretched 2008, when it lost 62%.
"That was largely because even though our companies were performing well, everything was being sold, particularly by the hedge funds, especially the commodity companies in which the hedge funds had large gains," says Gissen. "They were the first companies to be sold and there was wholesale dumping."
Real Estate
The REIT category has been on a furious tear, rising 27% in 2010 after seeing similar gains the year before, says Andrew Gogerty, an analyst at Morningstar. This is very different from the story two years ago when real estate was one of the sectors that was pounded the hardest and investors anticipated a crisis in the commercial space.
Property values had plummeted. There was a lot of leverage on REIT balance sheets, and many managers lost the access to capital that would help them buy new properties. As financing dried up, many REITs had to cut their all-important dividends (some 70% of Morningstar's real estate managers resorted to this). But those REIT managers that were disciplined found lots of discounted property to buy. And dividend payouts have increased. That's led to a sharp rise in the real estate fund sector returns.
"I don't think you're going to see the skyrocketing in rents or occupancy levels that you saw leading up to the '07 or '08 crash," says Gogerty about the outlook for the category. "You still have a lot of commercial real estate debt out there that needs to be refinanced. You're not seeing a tremendous amount of transaction volume because there's still an enormous gap between buyers and sellers."
Joseph Pavnica, manager of the Aston/Fortis Real Estate Fund, says that property operating fundamentals have started to improve, and he expects REITs cash earnings growth of about 9.5%. He says it will help fundamentals that there is not any new meaningful real estate supply coming onto the market. The improving economy will help.
"As a healthier GDP and employment picture unfolds," he says, "tenant demand increases across all property sectors."