University of Oregon Investors Focus on Small-Caps

Competition, University of Oregon-Style

The University of Oregon has produced competitive greats like Steve Prefontaine (running) and Ahmad Rashad (football), so it's no great surprise that the UOIG likes to compete.

The UOIG is currently ranked No. 1 in the Davidson Student Investment Program for 2007-2008 (which started Sept. 1, 2007).

According to senior Ben Brookins, DADCO's portfolio manager, "We are by far the best performer of the schools [in the Davidson competition]. If [the fund] was never rebalanced, our compound annual growth rate [would be around] 12% over the last seven years, while the next schools' [compound annual growth rates would be] near 3% or below that."

So how does the UOIG beat its peers?

Big Bets on Small-Caps

UOIG's approach to stock-picking is a bit different from that of other schools. The student analysts use a bottom-up approach when analyzing stocks, and they focus largely on small-caps . In fact, Brookins says "The only two stocks in our [DADCO] portfolio that are over $1 billion [market cap ] are ones that appreciated that way."

DADCO's current five stock holdings:

• FTI Consulting (FCN Quote - Cramer on FCN - Stock Picks)
• HealthExtras (HLEX Quote - Cramer on HLEX - Stock Picks)
• Oshkosh Truck Corp. (OSK Quote - Cramer on OSK - Stock Picks)
• ArthroCare (ARTC Quote - Cramer on ARTC - Stock Picks)
• General Communication (GNCMA Quote - Cramer on GNCMA - Stock Picks)

Sector Exit

You won't find a lot of financials in the UOIG's portfolios. But the reason for this might not be what you think. Crook says, "I'd love to take credit for the group that we saw the whole credit crunch coming, but we didn't." According to Crook , the group's exit from the financial sector was largely based on the issues they had using traditional valuation methods on these stocks.

Crook explains: "Last year we had two regional banks (PFF Bancorp (PFB Quote - Cramer on PFB - Stock Picks) and Pacific Continental Corp. (PCBK Quote - Cramer on PCBK - Stock Picks)), we had a couple of insurers (including American International Group (AIG Quote - Cramer on AIG - Stock Picks)) and a re-insurer (Everest Re Group (RE Quote - Cramer on RE - Stock Picks)), and slowly but surely we started getting out of them. We had difficulty valuing some of these banks and insurers that are asset-based and not fee-based for the fact that we didn't know how to value [their assets] correctly, in a way we felt good about."

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