Quaker fund's winning streak keeps going

Manu Daftary, who holds the second-longest winning streak in the U.S. mutual-fund industry, is devoting a third of his Quaker Strategic Growth Fund's assets to shares of energy and mining companies.

The Quaker fund rose 14.4 percent in 2005, exceeding the Standard & Poor's 500 Index's advance for a seventh-straight year. Only Bill Miller has done better. His Legg Mason Value Trust has outpaced the U.S. stock-market benchmark for 15 consecutive years.

Daftary raised his stake in U.S. oil drillers Patterson-UTI Energy and GlobalSantaFe in the fourth quarter, betting that demand for oil in India and China will lead to more exploration. He's also bullish about the earnings prospects for miners such as London-based Rio Tinto and Melbourne-based BHP Billiton, as metal prices reach records.

"We try to keep the portfolio as tilted toward earnings surprises and earnings potential as we can," Daftary, 49, said in an interview from his office in Boston. "Just keep it simple and you won't go wrong."

The $840 million Quaker fund ranks sixth of 30 mutual funds in the past 12 months that concentrate investments in shares of companies with above-average earnings growth, data compiled by Bloomberg News show. During the past five years, the fund rose at an average annual rate of 8.1 percent, ranking No. 1 among its competitors, which fell 2.2 percent on average.

Daftary began buying shares of oil-services companies about two years ago. Energy shares make up 23 percent of the fund, a weighting that's double that of the S&P 500. An S&P oil- and gas-services index rose 74 percent during the past year, as crude-oil prices climbed to all-time highs.

The companies are reporting profit growth that often exceeds analyst estimates and the stocks' valuations are still relatively cheap, Daftary said.

He added to his energy positions at valuations that make other investors wary.

His firm oversees $1.5 billion for clients. Investments in bridges, roads and factories in India and China will push up metal prices and the need for industrial products, Daftary said.

That's why he anticipates that earnings from Rio Tinto, BHP Billiton and Cleveland-based hydraulic-equipment maker Parker Hannifin will beat analyst forecasts.

Basic-materials stocks account for 12 percent of the portfolio, compared with 3 percent for the S&P 500, while industrial companies make up 15 percent.

Daftary has protected his streak of beating the S&P 500 and other growth managers by avoiding businesses he doesn't understand. He never owned Enron and WorldCom, companies that went bankrupt after accounting frauds, because he didn't like the management.

Stay away from companies that "go out there and tell you they're going to grow 40 percent forever," he said.