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Financial Services: Where the money is



There will come a time when the stock market turns around. And when it does, financial services funds could be poised to reap some rewards.

The financial services sector is one of eight different fund types that fall under Lipper's Sector Funds heading. At the end of 2002, while the average sector equity fund was down over 24 percent, the average financial services fund was down only 11 percent----and that's the bad news. The good news is not all financial services funds lost money in '02. The Burnham Financial Services fund, for instance, ended the year up 17.5 percent. Year-to-date (through January 24th) it was ahead 1.5 percent.

Anton Schutz, portfolio manager of the Burnham Financial Services fund (800-874-3863), has been at its helm since the fund first began in 1999 . Since then, the fund has made quite a mark: In 2000 and 2001, the fund was ranked No. 1 in performance by Lipper. In 2002, it ranked No. 3.

Schutz comes from a banking and hedge fund background, likes to buy value and sells when he can make a profit. As a result, this fund is not for anyone looking for a tax-efficient investment but best suited for those seeking absolute results.

With about 70 stocks in its portfolio, here's more from Schutz about the Burnham Financial Services Fund (BURKX):

Q: Reflecting on your background in banking, how has this industry changed?

Schutz: One thing is that there have been too many providers and it was obvious that there needed to be less of them. From 1990 to 2002, 15,000 banks went to 9,000. What's also amazing is if you look at the top 50 banks in 1992, 25 of them are gone.

Q: Has that consolidation been good for the banking industry?

Shcutz:It creates opportunities. It creates an opportunity for the bigger banks to provide everything to their customers because they can spend more on technology. It creates opportunities for the smaller banks to fill a niche. So you end up with two types of banks; the little guys where you know the CEO and the big Citibank model.

Q: Because there are so many different subsectors within the financial services sector, how does that impact performance?

Schutz: It's interesting because there are so many. Some of them are asset managers, specialty finance, mortgage REITS, financial technology, insurance companies and savings and loans. So it's a huge sector with lots of different subsectors to it which will move at totally different times. That's why there's such a large discrepancy between the best and the worst ( performing funds) in this space.

But people always ask me, can you make money when rates go up, or, when the economy improves. And the answer is, if I make the right macro call, then, yes, I can.

Q: You've said that this fund isn't for those who are looking for a tax-efficient fund. What do you mean?

Schutz: If I can capture a profit, I'm going to go capture it. And, I'm going to try to make another (profit) whether that's in the short, intermediate or long term. There are certainly positions that I will buy and hold and put away, but around those positions I will trade.

Q: What parts of the financial services industry does the fund currently have its largest exposures in?

Schutz: I've got about a 20 percent exposure to smaller regional banks. One holding there is National Commerce. Insurance is at 10 percent and includes names like Prudential and Travelers. And then, in my small savings and loans, I've got about a 40 percent position with names like New York Community and Bancorp.

Q: What's a key factor in running money?

Schutz: Part of making money is not losing it. It sounds stupid. It sounds counterintuitive, but if you want to participate in having some really good picks, make sure you don't have a bunch of bad ones either.

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Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.


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