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Hedge Your Bets With Manning & Napier Fund

Conservative Managers Steer for Wealth Preservation

 Amy E Buttell Bookmark and Share

Even though the Dow Jones industrial average broke through 11,000 in mid-April, you probably haven’t forgotten the nightmarish lows of 2008 and 2009. If you’re looking for a fund that can protect you on the downside and offer some potential for capital appreciation, Manning & Napier Pro-Blend Conservative Term (ticker: MNCIX) may be for you.

 A balanced fund that’s heavily skewed toward bonds, Manning & Napier Pro-Blend Conservative Term posted a small loss in 2008, handily outperforming the vast majority of its peers. Of course, it trailed those peers significantly in 2009 when the market bounced back but still posted a respectable 11.3
percent gain. Over the long term, the fund’s record is sterling as well. (See tables, below.)
The fund’s experienced managers seek to limit risk by holding high-quality government and corporate bonds for the bond portion of the portfolio and companies with dominant franchises that are trading at a discount to fair value for the stock portion of the portfolio. Stock and bond allocations aren’t fixed, which gives the fund’s management the flexibility to add stocks and subtract bonds when bond values are up and do the opposite when stock values are up.
Manning & Napier Pro-Blend Conservative Term is one of the fund family’s four lifestyle blend funds; the others are moderate and aggressive blend funds. The Rochester, N.Y.-based asset-management company has an extensive lineup of stock, bond and money market funds in addition to lifestyle and life-cycle funds.
The fund is also a Morningstar Analyst Pick; such funds have to meet rigorous quality standards set out by fund-data tracker Morningstar.
Members of BetterInvesting’s Fund Review Committee selected Manning & Napier Pro-Blend Conservative Term Fund because of its distinctive investing strategy, long-term management, attractive performance record, low fees, a low minimum investment amount of $2,000 and other attributes. The fund is featured for educational purposes only; no investment recommendations are intended.

Management Philosophy and Outlook
According to the fund’s offering prospectus, the fund is designed to preserve principal and provide some opportunity for capital appreciation. “In pursuit of the series’ primary goal,” the prospectus states, “the adviser seeks to protect capital while generating income. The adviser may simultaneously seek growth opportunities as a secondary priority.”
In terms of the portfolio’s bond component, the fund prefers short- to intermediate-term high-quality government and corporate bonds. For the portfolio’s stock portion, the fund can invest in companies of any size, both in the United States and overseas.
Every month, the fund family provides market commentary and some thoughts on how the markets are impacting decisions about the fund’s portfolio. In April, Manning & Napier management wrote: “In such an uneven economic environment, the gap between the winners and the losers can become large, which makes a selective investment approach even more important. We continue to maintain above-average equity exposure.”
For the stock portion of fund portfolio, the management wrote: “Our proprietary stock selection strategies continue to reveal profile and hurdle rate opportunities in strong, well-positioned companies, especially in growth areas such as health care and information technology and hard-hit cyclical industries such as airlines and transportation.”
The hurdle rate, also known as the minimum acceptable rate of return, is a metric that corporate managers use when deciding whether to spend money on a project given its particular risk-return profile and the potential cost of forgoing other projects.
In terms of the bond portion of the portfolio, the management wrote: “The best fixed-income opportunities continue to reside in credit sectors. We have pushed our accounts’ exposure to high-yield bonds close to relative high levels, so any additional allocation would require a consolidation in that sector of the market.”

Portfolio and Performance

As of the end of February, the fund had 68 percent of its assets invested in bonds, 23.7 percent in stocks and 8.2 percent in cash, according to Morningstar. A total of 4.6 percent of Manning & Napier Pro-Blend Conservative Term’s portfolio is invested in foreign stocks.
For the portfolio’s bond portion, the average credit quality is AA, the second-highest rating. This means that on average, the portfolio’s bonds are of a high quality. In terms of maturity, the bonds are intermediate-term. The portfolio has a yield of 1.25 percent.
The bonds have an average duration of 4.86 years. This means that if interest rates go up by 1 percent, the bond portion of the portfolio will decline in value by an average of 1 percent. On the other hand, should interest rates decline by 1 percent, the portfolio’s bond portion will increase by 1 percent.
The fund’s top four stock holdings are Google (GOOG) at almost 1 percent of portfolio assets, Walt Disney (DIS) at 0.9 percent, Cisco Systems (CSCO) at 0.8 percent and EMC Corporation (EMC) at 0.7 percent. The fund’s top stock sectors are health care, software, financial services and consumer goods.
In terms of performance, the fund has outperformed both comparable market indexes and its category on a three-, five- and 10-year average annual return basis. Manning & Napier Pro-Blend Conservative Term ranks in the top 10 among its peers for those same periods, according to Morningstar.
The fund isn’t very volatile: During the past 10 years, it has had only one down year — 2008, when it lost over 5 percent. It recorded a gain every other year, although those gains aren’t spectacular. This is to be expected given the fund’s large holding of bonds. It notched its best year of the last 10 years in 2000, when it gained 13.3 percent.

Management and Costs

All of the series lifestyle funds are managed by the same management team: 10 managers with a combined experience of 99 years with the funds, or an average of 9.9 years per manager. Eight of the 10 managers carry the Chartered Financial Analyst designation, the premier designation for investment managers around the world.
Most members of the management team have a specific responsibility to monitor stocks and bonds in certain sectors, such as technology and capital goods for stocks, fixed income for bonds or real estate. Other managers have expertise in quantitative strategies and global strategies, adding further diversification to the management team.
The fund’s expense ratio is 0.90 percent, meaning you pay $9 in costs for fund administrative and management expenses for every $1,000 you invest in the fund. The fund has no sales load, redemption fees or 12b-1 marketing and distribution fee. Fund data-tracking company Lipper reports that the category average for flexible-portfolio funds is 1.26 percent, which is significantly higher than the ratio for the Manning & Napier Pro-Blend Conservative Term Series Fund.

Protection From Risk

If you’re looking for a balanced fund that offers protection from downside risk and a moderate potential for capital appreciation, Manning & Napier Pro-Blend Conservative Term Series Fund is worth investigating. The fund boasts long-term management, a strong track record, a distinctive management style and low costs.
Before investing, however, do your due diligence to make sure the fund is a good fit to help you meet your long-term investing goals.

— Reporting by contributor Amy E. Buttell

Freelance writer Amy E. Buttell of Erie, Pa., covers mutual funds for BetterInvesting. She’s also the author of the second edition of the association’s Mutual Fund Handbook.

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