Last Updated: April 24, 2008: 11:04 AM EDT
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Investment strategies for tough times

Cohen & Steers fund manager Rick Helm talks about why he likes banks, a Florida energy giant, and the Bear Stearns deal.

By Jon Birger, senior writer

Rick Helm is working to diversify Cohen & Steers beyond REITs.

(Fortune) -- When it comes to Cohen & Steers, mutual fund junkies think one thing - real estate. The New York-based fund shop has been a top manager of real estate investment trust funds since the 1990s. But lately, this REIT focus has been a mixed blessing. Selling real estate funds was easy when REITs were hot (as in 2004, when Cohen & Steers flagship Realty Shares fund was up 39%), but it's become much harder now that REITs are in the dumps (last year Realty Shares slipped 19%).

Cohen & Steers has been trying to diversify its fund offerings in recent years, and among its hires was a team of value fund managers from Washington Mutual, led by Rick Helm. While the money has yet to come pouring in - assets under management at Helm's Cohen & Steers Dividend Value fund (DVFIX) stand at a modest $130 million, according to Morningstar - the returns have been quite good. Dividend Value returned 21% in 2006, beating the S&P 500 by 5 percentage points, and 9% last year, besting the index by 3 points. The fund is down 7% so far this year, but relative performance has been solid, as Helm is two percentage points ahead of both the S&P and his Morningstar peer group.

Fortune senior writer Jon Birger recently spoke with Helm about his strategy, his portfolio and his outlook for the market.

Your focus is more on finding stocks with growing dividends than high dividends. Why?

Yes, the stocks we generally look for don't have to be high yield, but rather have high rates of dividend growth relative to the overall market. Ned Davis Research looked at this and found that from 1972 to 2007, companies growing or initiating dividends outperformed the market quite handily (by 2.4 percentage points a year). And they did so with a lower standard deviation, which means their risk was lower. (High dividend growth stocks among Helm's top holdings include: Nike, average dividend growth of 26% over the past five years; Lockheed Martin, 28%; and Wells Fargo (WFC, Fortune 500), 16%.)

Presumably, you see rising dividends as a sign of corporate health?

Exactly. Nobody is going to raise dividends if their business is waning.

You have a number of bank stocks among your top holdings - Wells Fargo, Bank of America (BAC, Fortune 500), JPMorgan, Citigroup (C, Fortune 500). Are you worried about them?

If you look at the quality of our banks, they've had far less in write-offs because they had less exposure to higher-risk, low-doc and no-doc mortgages.

But even plain-vanilla mortgage-backed securities held by banks have taken a hit. Do you believe the cash flows of these mortgages will hold up better than their market values have?

What we've seen is high levels of write-downs simply because the secondary market for these securities has dried up almost completely. I don't think that means all these mortgages are gong to default. In fact, I think you could eventually see some write-ups [of mortgages whose valuations had to be marked down], though it probably won't happen for several quarters.

Then presumably, you don't think the mortgage crisis is going to get much worse.

I'm not convinced we are in a recession yet, and even if we are, the market has already priced a recession in. I don't think we're gong to see long sharp recession. My guess is we may touch negative growth for a quarter, and then we'll start slowly coming out of it.

As a shareholder of JPMorgan, what's your take on the proposed buyout of Bear Stearns (BSC, Fortune 500)?

As a JPMorgan stockholder, I thought it was an excellent buy at $2, but that probably wasn't a fair price. (The revised purchase price is now $10 a share.) In general, I think it is a great acquisition for JPMorgan (JPM, Fortune 500), if they've done their due diligence. And given that (JPMorgan CEO) Jamie Dimon is one of the best operators in that industry, I assume they did.

Is FPL Group (parent of electric utility Florida Power & Light] still your biggest holding?

It is still our biggest position. There's two things that we look for in utilities. We like strong demographic position, and Florida scores high for population growth and business formation. And we also look for a favorable regulatory environment, and Florida has generally been a place where rate increases could be passed through. FPL (FPL, Fortune 500) is also one of the largest wind power generators and that's an area we think they'll be able to continue to cultivate.  To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET

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