When Jerry Jordan was deciding what to call his new mutual fund, he wanted a name that would reflect a decisive investment style that takes its cue from what he describes as "strong, investable themes with growth potential." Three years later, the manager of the Jordan Opportunity Fund sees health care and energy as the themes with strong potential for growth and reasonable valuations, and with over half of the fund's assets in those sectors, he is clearly willing to stake a sizable claim based on his convictions.

"A lot of people believe energy has already had a strong run and is too economically sensitive, but I look at it as a growth area," says the 41-year-old Jordan. "Eighty percent of demand comes from transportation, so even if oil prices go up people are still going to drive. And China and India are adding millions of new drivers to every year."  He adds that with anemic supply growth, it is unlikely that oil prices will drop and will more likely continue to rise.

He views health care, which accounts for nearly one-third of fund assets, as a recession-resistant sector that has underperformed for most of the last seven years. While the stocks are inexpensive, Jordan says he expects the health care companies in the portfolio to grow earnings at a healthy 12% to 20% annual clip.

Beyond health care and energy, the fund is spread widely with small stakes in about a half-dozen other industries. The fund is treading lightly in banks, retail stocks and technology. The latter sector "is too expensive, and has too many believers who are dying for tech stocks to do well in 2008." But he has been buying some of the more "growthy" software names where the underlying demand remains firm, either because of their product line or the cycle they are in.

To find dominant sectors Jordan starts with a top-down look at the markets, the industry environment and inflation. He then looks for four to six major secular themes that may be underappreciated or ignored by the market, and takes sizable positions in them. Sources for ideas include quarterly earnings reports, trade magazines, general interest publications and newspapers.

"Most fund companies have dozens of analysts all studying industry groups that no one has any interest in most of the time. We focus only on areas that make sense to use right now, and then have the entire organization focus on the same areas so nothing slips through," he says.

What the $35 million fund lacks in size it makes up for in decisiveness. To give stocks an ample voice in the portfolio the fund typically owns between 25 and 40 securities. The largest position, a precious metals exchange-traded fund, represented 7% of assets in late February.

To get the nod, stocks must have growing earnings, a proprietary process or technology, and a dominant share of their market. They must also look attractive from a valuation standpoint. "Historically what you want to own are companies that have already priced in bad news, or where they're not going to have any bad news," says Jordan.

Once the themes and the companies representing them lose steam he'll find more productive ideas to replace them. With a portfolio turnover rate of 384% in 2005 and 304% in 2006, the last full year of reporting, it is clear that he likes to manage aggressively around market cycles. Sometimes he will sell large positions in a particular sector he thinks is ripe for a downturn and buy back the same stocks a few months later after the carnage. He may establish positions after significant market corrections have brought stocks down to valuation ranges he considers attractive, then sell once they reach his price target.

The buzz of activity, he admits, makes the fund more appropriate for tax-deferred retirement accounts where tax efficiency is not a concern. "Sure, you can call me a market timer," he says. "But most people who have invested in the fund aren't complaining." Based on its one-, three-, and five-year annualized returns the fund has been among the top 2% of Morningstar's large growth category, with only one negative quarter since its inception in January 2005.

Jordan mixes a gutsy investment style with protective measures that are designed to limit losses. At times when he has not been able to find enough good investment ideas or feels the market is headed for a spill, the fund's stake in cash has been as high as 20%. At the end of 2007 cash stood at 15% of assets after the sale of some brokerage stocks. The securities appeared attractive when he bought them during the year, but headed south later on with other stocks in the financial sector. By the end of January the fund was fully invested again as Jordan picked up some commodity stocks in niches with constrained supply and strong demand, such as steel and precious metals.

Despite the brokerage stock misstep, the fund ended 2007 with a one-year return of nearly 26%, thanks to large bets in more profitable sectors as well as protective measures such as moving into cash from time to time and buying index put options. He used the latter technique early this year with put options on energy ETFs, a move that he says played a significant role in maintaining performance.

Jordan Opportunity Fund's decidedly un-mutual-fund-like disregard of style boxes, benchmark weightings and stay-fully-invested philosophies are an outgrowth of Hellman Jordan Management, a firm founded by his father, Jerry Jordan Sr., in 1979, after a stint of over a decade as a fund manager at Putnam. The younger Jordan joined the firm, which manages some $550 million in assets in separate accounts, in 1996.

A Short Recession

Jordan believes that many investors are being spooked by a U.S. market that is decelerating rapidly, a shrinking European economy, and a Japanese economy that is probably in recession. "But you've got South America, Russia and all of Asia still growing firmly. A lot of that is due to raw material production, because demand continues to be good. One thing to keep in mind is, amidst all the recessions we've had in the last 25 years in the United States, we have never had negative oil demand. So when it comes to commodities, demand continues to be there in developed economies."

He points out that most recessions over the last 30 years have lasted no longer than six months or so, and believes this one is likely to follow a similar pattern. Although he acknowledges problems in the financial and housing sectors, he points out that jobs in the health care, manufacturing and other service industries remain secure, and that the Fed's moves to cut interest rates early this year, though delayed too long, will keep the economy from heading into a freefall. "The fourth quarter of 2007 marked the first recessionary quarter and I believe we will be pulling out of it by the second half of the year," he says. "Overall the recession won't be that bad, but I don't think we'll see robust consumer spending for awhile."

Positive trends such as substantial buying by insiders, high dividend yields and attractive valuations will help lead the market higher this year, although there will be a lot of bouncing around in the interim. "Things are going to be fine over the next couple of years," he says. "This is not like 2001, and we are not in the midst of a wipeout."

As most investors focus on what can possibly go wrong with the stock market or the economy, Jordan is solidifying a foothold in companies whose stocks are selling at reasonable valuations that have the potential for expanding price-earnings multiples. Many of those stocks are in the health-care sector. Medtronic, the largest maker of cardiac devices in the country that has also seen success with its neurological, diabetes and spinal products, peaked in 2000 at $63 a share and is now trading in the mid-forties.

"This is a stock whose multiple has traditionally been in the 25 to 30 range that is now selling at just 18 times earnings," he says. He believes earnings growth will reaccelerate in 2009 to a rate of 12% to 15%. He also likes Humana, whose HMO business is growing earnings at a rate of 15% to 18% a year, and Hologic, whose Lorad division makes leading-edge digital mammography and breast biopsy systems. Both stocks should benefit from an aging population and growing need for health care services and equipment.

In the energy sector he favors oil service and drilling companies such as Schlumberger because of strong demand for their services. He says the stock, which has traded in the $70 to $80 range recently at a historically low valuation, could rise to $120 over the next 18 months. While he is treading lightly in financial services, he owns shares of Blackstone Group, a large private equity and hedge fund manager that has seen strong growth in assets under management. Commodities plays include steel maker Nucor and U.S. Steel. With inventories at 10-year lows, he believes that even a small economic uptick could drive steel prices in the U.S. upward by 15% to 20%.