The "Last Man Standing" Strategy
Difficult times can create opportunities for investors willing to take some risks. For example, the financial crisis has wounded so many firms that it might make sense to employ a “last man standing strategy.”
That’s how Matt Kaufler, portfolio manager of the Touchstone Value Opportunities Fund (CCETX) describes one of his approaches.
Yes, financial stocks are hitting new lows and continue to report huge losses from bad debt or worsening credit quality. But, “There will be survivors,” Kaufler told me. “The real challenge is figuring out who those winners will be.”
Kaufler’s fund owns shares of Assured Guaranty (ago). The bond insurer always operated in the shadow of its larger rivals MBIA (MBI) and Ambac Financial Group (ABK). But those two firms took risky subprime bets, and were recently downgraded by credit rating agencies. That creates an opportunity for Assured Guaranty and other rivals to eventually win business insuring municipal bonds, Kaufler says. Also attracting Kaufler to Assured Guaranty is a $1 billion commitment to the company from investor Wilbur Ross.
Even with those advantages, the firm faces plenty of trouble as the financial crisis unfolds. The stock is volatile, reflecting the very real risks in buying any bond insurer at a time like this.
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