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Smallish Jordan Fund Offers Big Returns

This almost unheard of mutual fund is charging into the fourth quarter in a bullish mood.

Editors note: This is the third of four articles reviewing the third quarter in mutual funds and the outlook for the fourth quarter. You can read the first two stories here and here.

You've probably never heard of Jerry Jordan. After all, his


Jordan Opportunity (JORDX) fund is tiny, with less than $30 million in assets, and it's been available to the general public for less than two years.

But he's making quite a debut.

Jordan Opportunity has rocketed 7.4% in the third quarter and a thumping 25.7% so far this year, after beating the Street with a 9.2% result in 2006. And that's a continuation of earlier successes. Jordan ran the fund as a private investment partnership before opening it to the public, and it beat the

Standard & Poor's 500

index over the past five and 10 years.

Jordan Opportunity is a concentrated, flexible, growth-oriented mutual fund. And despite this summer's shakeout, the manager is charging into the fourth quarter in a very bullish mood.

"We believe it's a bull market," he insists, saying, "The


cutting rates always works." (Except in 2001, he adds.)

One big bet he's making right now: Wall Street banks.

"We've got

Goldman Sachs

(GS) - Get Report


Merrill Lynch



Morgan Stanley

(MS) - Get Report

," he says. "We didn't buy them until the big blowout in February. We bought more in the selloff in July." He was tempted to ramp up even more during the August panic, but admits, "We got scared about buying more."

The reason he likes them? "If it's a bull market, the brokerage stocks do well. And we believe it's a bull market. We think the valuations are already discounting a lot of bad news over the next two years."

Indeed, even after several weeks' rally from their August lows, the stocks are cheaply valued. Morgan Stanley, Goldman Sachs and Merrill Lynch are each around eight or nine times forecast earnings -- assuming those earnings come through. If you're bullish, this would be a place to bet. "We don't think it's a bear market for a number of years," Jordan adds.

Jordan also likes commodity plays, for similar reasons: Namely, if you're bullish, they're cheap.The oil market, he points out, now expects prices to fall over the coming years, and the picture is the same in some other commodity markets. As a result, Wall Street analysts are taking a cautious view of earnings.

A case in point: copper miner


(FCX) - Get Report

. The Wall Street consensus predicts earnings this year of $9 a share, he says. "But if copper

prices stay where they are, it's going to earn $12 to $14."

That would make the shares, currently $106, a steal.

Jordan's other energy plays include services giant


(SLB) - Get Report

, deep-water rig company


(RIG) - Get Report

TheStreet Recommends

, driller


(NE) - Get Report


Occidental Petroleum

(OXY) - Get Report

and Canada's


(SU) - Get Report


His third big sector is healthcare. It's less economically sensitive. But he believes we are going to see a big upsurge in R&D spending, both by the major pharmaceutical companies and by biotech research ventures. He's looking for companies that will benefit.

Picks include testing and research services companies





(PKI) - Get Report





Jordan's also betting on


(HOLX) - Get Report

, a medical testing company focused on women's health. The company is a leader in equipment to screen for breast cancer. He sees big benefits from its merger with



, another testing company also focused on women's health.

On the other hand, unlike a lot of bulls, he remains wary of technology, one of this year's hottest sectors. "I own


(AAPL) - Get Report

, I own


(GOOG) - Get Report

, that's about it," he says. He notes technology has promised and disappointed before.

Jordan characterizes his investment style as growth-oriented. He aims usually to hold a concentrated portfolio of 20 to 30 stocks, arranged around a few big themes. It's a top-down approach. "We're looking to have three to five big themes that are secular in nature that we can invest in and then trade around," he says.

His fund has a number of advantages. It's small and independent. The managers aren't answering to a sales force or seat-polishers in a big corporation. And the fund has a degree of flexibility. The manager can trade options and hold some cash and foreign stocks. He used put (or "down") options to hedge his portfolio over the summer "and it really helped us out in August," he says.

Coming up next: Funds that bet on corporate takeovers.

In keeping with TSC's editorial policy, Brett Arends doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Arends takes a critical look inside mutual funds and the personal finance industry in a twice-weekly column that ranges from investment advice for the general reader to the industry's latest scoop. Prior to joining in 2006, he worked for more than two years at the Boston Herald, where he revived the paper's well-known 'On State Street' finance column and was part of a team that won two SABEW awards in 2005. He had previously written for the Daily Telegraph and Daily Mail newspapers in London, the magazine Private Eye, and for Global Agenda, the official magazine of the World Economic Summit in Davos, Switzerland. Arends has also written a book on sports 'futures' betting.