Xstrata, Dell, Amdocs Top Masters' Thesis

NEW YORK ( TheStreet) -- Jeremy DeGroot, manager of the Masters' Select International Fund ( MSILX), says his team is bullish on mining and technology stocks.

The fund, which has earned five stars from Morningstar ( MORN), is run by investment firm Litman/Gregory, but relies on subadvisers to pick stocks. The portfolio has risen 39% this year, better than 71% of its peers. During the past five years, the fund has returned an average of 7.9% annually, better than 86% of its rivals.

Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers share their investment views in five questions.

Are you bullish or bearish?

DeGroot: We are more bearish than bullish. But Masters' Select International is comprised of the best stock-picking ideas of each of the fund's six subadvisers and Litman/Gregory's market outlook is not relevant to how the fund is managed.

We don't apply a top-down or macro overlay on the fund's portfolio. It is built stock by stock, from the bottom up. While we see fundamental economic and valuation headwinds that we think are likely to limit the returns to broad equity indexes over the next five or so years, the fund's stock pickers are optimistic, if not outright bullish, about the return prospects for the individual stocks they are finding for the fund.

What stock is your top pick?

DeGroot: I am going to read comments from one of our subadvisers on Xstrata, a U.K.-based global diversified mining company, which is a top holding in the fund.

"The investment in Xstrata reflects our strong belief that mining, in general, is an attractive industry because it is a massively concentrated industry and the best assets have cash costs that are significantly below the marginal player's cash cost, and therefore the industry leaders can maintain high profit margins as prices tend to converge to the marginal producers' higher costs.

"In many commodities, especially copper, there is limited new supply and it takes 10 years and several billion dollars to develop a new significant mine. Finally, and most importantly, China's fast-growing, commodity-intensive economy is short mining commodities, meaning there is strong growth and good visibility for demand in a sustainably undersupplied market.

"The financial crisis of 2008 led to a plunge in the stock price and Xstrata did an equity offering that fixed their overextended balance sheet. This gave us the buying opportunity we were looking for. The focus of the company on copper and coal also was very attractive because of the strong demand and sustainably high margins, and because the company was moving very aggressively to reduce its costs."

What is your top "under the radar" stock pick?

DeGroot: Likewise, here are some comments from another subadviser on a sleeper pick: L.E. Lundbergforetagen or "Lundbergs."

"Lundbergs is a Sweden-based holding company that owns assets that can be broken down into two groups, an unlisted real-estate subsidiary and a stake in publicly listed holdings.

"Although 2008 was a difficult year for the company, Lundbergs' long-term investment track record has been impressive. Despite the aforementioned setback in 2008, the company managed to grow its net asset value per share by an average annual rate of nearly 10% during the 10 years ended Dec. 31. During that same period, Lundbergs' average annual total shareholder return was nearly 16%.

"Lundbergs should benefit from its strong financial position. At year-end, the company's debt amounted to only 12% of the market value of its assets. This financial strength and flexibility, in addition to the investment track record of management, should suit the company well as it evaluates potential investment opportunities in the current environment. Market concerns surrounding Nordic industrial stocks and the macro-economic environment in general enabled us to purchase shares of Lundbergs at discounts in excess of 20% to its net asset value."

What is your favorite sector?

DeGroot: Masters' Select International currently has a large overweighting to the technology sector, including names such as Dell ( DELL), Advantest ( ATE) and Amdocs ( DOX).

Which sector would you avoid?

DeGroot: The fund has no exposure to utilities as no managers are finding compelling enough opportunities there to meet the Masters' "only your best ideas" mandate.

-- Reported by Gregg Greenberg in New York.
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.

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