Granite Investment Advisors is set to launch its first retail mutual fund this week, the Granite Value Fund.
The new fund (GVFIX) will have between 30 and 40 mid-cap and large stocks. It is the same strategy that Granite has been using for its much larger investors since 1994.
As to why the world needs another mutual fund right now, Granite’s CEO and Chief Investment Officer Scott Schermerhorn said the firm’s equity strategy, with a net annual average return of 8.3% from inception through third quarter 2011, has long been popular among investors — friends and family of the firm — who may not have had $1 million for a separately managed account. A retail mutual fund will bring the strategy to those investors for smaller amounts of money, he said.
The reason the concentrated portfolio strategy style is advantageous, he said, is that it allows the firm to generate returns above and beyond a passively managed fund. “When you have 300 securities in a fund, you are no longer an actively managed fund, you are quasi-passive because you’ve created an index,” he said.
The firm aims to keep its fee structure as transparent as possible to investors, he said. There will be a 1% management fee and administrative fees that will be capped at 35 basis points and will drop over time, according to Schermerhorn. The highest fee for investors in the new fund therefore will be 1.35%, he said.
When picking stocks, Granite looks for “companies that we believe are undervalued” and are improving, he said. Generally speaking, for many US corporations right now, stocks are a better place to be than the corporate bonds, he said, if you look at dividend yield levels compared to bond yields.
Granite’s broad domestic economic outlook is that the US will be in a slow recovery, and the reason it will be slower than it could otherwise have been has to do with debt. “When countries are in more debt recoveries are slower because you have to pay some of the debt back,” Schermerhorn said.
Danielle Reed writes for Financial Planning.