Croft Value Fund Looks to Power Sector

The five-star Croft Value fund(CLVFX Quote) is making a power play.

"Domestically there are 2 million miles of grid network in the United States, half of which was built over 40 years ago and is now outdated," says fund manager Kent Croft. "Congress passed the Federal Energy Act in 2005 to address the problems and the blackouts they caused, but unless substantial capital is invested over the next several decades in new generation, transmission and distribution facilities, service quality will degrade and costs will go up."

Croft is taking advantage of this theme by investing in companies that will benefit from improvements in electric transmission and distribution.

It's worth taking note when the Croft family -- he manages the fund with his brother and his father -- latches onto a theme. The $61 million fund has returned an average of 17% annually over the past five years, over six full percentage points better than the S&P 500.

"On a local level, regulatory agencies have historically allowed an 8% return on transmission and distribution. Now, those allowable rates are up to 13%, which means utilities and the companies that supply them can make more money," says Croft. "And emerging markets are coming into their own now as well. They need power and they need it now."

One of Croft's top picks is General Cable(BGC Quote), one of the largest domestic producers of transmission lines.

"It's a cheap stock trading at 13 times next year's earnings with almost a 15% annual growth rate," says Croft. "And their acquisition of Phelps Dodge's cable business gave them a boost in Southeast Asia. Half of their sales are overseas now."