Watching Capitol Federal Like a Jayhawk

TheStreet.com: Who runs Capitol Federal?

The Dicus family started the company and continues to run it. The father -- John C. Dicus -- started it and the son -- John B. -- is the current CEO.

TheStreet.com: What role does the yield curve play in Capitol Federal's business?

Shenoy: CapFed's business is very dependent on the yield curve. Net interest income is higher when the yield curve is steeper. They make loans at the longer term rates and pay deposits based on shorter term rates. Now as the yield curve steepens, business should get better. Housing hasn't been as over-built in Northeast Kansas, but it's still slow now. Eventually, housing demand will pick up again.

TheStreet.com: Capitol Federal is headquartered in Topeka, Kansas -- not too far from the University of Kansas. What other local or regional companies does the APM fund currently hold?

Shenoy: Current local holdings include Kansas City Southern (KSU Quote), Garmin (GRMN Quote), Inergy Holdings (NRGP Quote), NIC (EGOV Quote) and two of Tortoise Capital's closed-end mutual funds that invest in midstream energy MLP's [master limited partnerships].

TheStreet.com: Do you advise individual investors to spend time researching local or regional companies?

Shenoy: We think it's a good opportunity. There will usually be someone in the community who knows the good and the bad about the company. We were able to sell NovaStar Financial [over-the-counter ticker: NOVS] early, based on some local knowledge, but we didn't avoid taking a big bath in Brooke Corp. (BXXX Quote) [Year-to-date, shares are down over 90%.]

TheStreet.com: What are the APM fund's current rates of return?

Shenoy: Year-to-date, 0.56%. Since June 30, 2007, 5.6%.

TheStreet.com: What are the fund's current five largest holdings, and why?

Shenoy:

Interceramic (Mexico Stock Exchange: CERAMICB)

Golden Meditech (Honk Stock Exchange: 8180)

Kansas City Southern

China Green (Honk Stock Exchange: 0904)

Quicksilver Resources (KWK Quote)

Interceramic is one of the largest North American tile companies. They have sales in Mexico and in the U.S. The split is about 50/50. Even in a terrible housing environment they have had record U.S. sales in Q1 [first quarter of] 2008, as European tiles have become much more expensive because of the [weak] dollar.

Golden Meditech is a high-tech medical device company in China. They have three main segments - Autologous Blood Recovery (ABRS), Cord Blood Bank, and several smaller segments. 72% of the profits come from the ABRS segment. ABRS is used instead of blood transfusions in China and other places where blood banks aren't common.

With Kansas City Southern, volumes have been up this year. We initially invested in November 2006 because of the monopoly rail link from the new Mexican port on the Pacific Ocean in Lazaro Cardenas. They are in a great position to capitalize on Asian and NAFTA shipping. They have cut costs by investing in new locomotives. Great position for "intermodal" business.

China Green produces food in China for both the domestic and export market. The company originally exported primarily to Japan, a notoriously "picky food country," so we know they can produce extremely high quality produce. They have consistently increased their cultivation base. The increase buying power of the growing Chinese middle class is a key driver. They have good logistics and management. They aren't cheap anymore, but still a solid performer. May be time to take some money off the table here.

Quicksilver Resources is primarily a natural gas exploration and production company. Their primary production point is the Barnett shale in Fort Worth. They have some oil production and are exploring new areas. We generally like natural gas better than oil. We aren't sure where oil prices will be next year, but a lot of companies have switched to natural gas because of its cleaner burn. Demand should stay high.

TheStreet.com TV: Cramer: Why Nat Gas Is for Keeps

For more on Shenoy and KU's student-run APM fund, check out "Open Book: How to Beat the Street."