Lawrence Babin: Victory Diversified Stock Fund

The fund's co-manager says his ability to adapt to changing conditions has helped him rise to the top

For Lawrence Babin, two-time winner of the Standard&Poor's/BusinessWeek Excellence in Fund Management Award, investing is more an art than a science. "It's about making judgments without complete information," the 57-year-old manager of the Victory Diversified Stock Fund says. "We come to work every day not knowing what the market will bring." Because of that, Babin and his two co-managers employ a "pragmatic approach" which adapts to changing conditions.

RESTRAINED INVESTING.

  "A lot of managers have only one style," he says. "There are periods where the market rewards their strategy and there are periods where the market could care less. But we think it's our job to understand what the environment is and fashion our portfolio to fit that environment." So if growth stocks are in favor, he will tilt towards growth. If value stocks are better, he buys them instead. Momentum stocks, high quality stocks, or leveraged stocks -- whatever it is, he's there.

That doesn't mean Babin invests without restraint. The fund generally hews to the large-cap blend category and keeps the average capitalization of its stocks close to that of its benchmark, the S&P 500. Nor will Babin typically let a stock position grow larger than 5% or a sector position more than twice its benchmark weight. But within this playing field, he's always searching for the hidden opportunity.

CAREFUL PLANNING.

  For instance, the fund recently benefited when Capital One Financial decided to acquire North Fork Bancorp, a stock Babin bought specifically because he thought it could be an acquisition target. "This year, mergers are picking up again, so we've been looking at companies with attractive qualities to potential suitors," he says. In North Fork's case, that was strong deposit growth and a management team receptive to being acquired. But should the M&A activity dry up, Babin will be looking for something else to give his fund an edge.

Over the long term, Babin's forward thinking has paid off. The fund has only had one down year -- 2002 -- in its 16-year history, and has beaten 97% of its peers in the large-cap blend category over the past 10 years. Babin and his two co-managers Paul Danes and Carolyn Rains have more than 60 years of money management between them, most of it at Victory Funds, which Babin joined in 1982.

"Nobody has ever left our portfolio management team," Babin says. With 12 supporting analysts, each with an average tenure of 10 years at the firm, it's no wonder this fund has stayed ahead of the curve.

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