San Diego, Calif.-based Rady Asset Management, which manages $270 million, takes a contrarian approach to investing, offering hedge-fund-like strategies in mutual funds. One strategy he employs is buying stocks trading at or near 52-week lows. That method can be attractive to investors during sluggish stock markets, he says, because of downside protection -- the shares have already tanked -- and the potential for big returns.
"On the long side, we buy irreplaceable, dominant first-tier companies," Rady says. His investment firm's short-only fund takes wagers on a decline in shares of what he calls second-tier companies trading at 52-week highs. Rady says cumulative returns in the long-only strategy have been triple those of the benchmark S&P 500 Index over the past 15 years.Rady says a pitfall is a so-called value trap, when a company whose shares have tumbled is mistaken for a value stock. "When stocks get cut in half, you sometimes buy 50 cents for 50 cents," he says. "My job is to make sure we're buying $1 for 50 cents." Another risk is being too early with stock picks. Rady says the fund's biggest sector holding is natural-gas exploration and production companies. Natural gas is trading at historic lows, and many investors expect no quick turnaround. "Our performance has suffered, but that's one of the drawbacks of being a deep value investor," Rady says. For investors looking for deep-value plays in a volatile market, Rady offers a list of five stocks owned in funds by Rady Asset Management.