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November 7, 2005 12:44 pm

Renaissance: US Growth Investment Trust

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When Russell Cleveland is not managing the Renaissance US Growth Investment Trust, he is writing a book on entrepreneurial chief executive officers.

This focus on rising stars is not unrelated to the way he chooses stocks.

“Our major premise is to find people who are successful,” he says. “We like companies with managers who have invested in 20 per cent of the company themselves. We also prefer it when they have real money in stock, not just options. People manage their own money better than other people’s.”

His procedure is similar to a private equity approach, with investments typically made on a five-year-plus basis and active involvement in the underlying companies, sometimes taking seats on the board.

Mr Cleveland says that some of his best decisions have been small and relatively unknown companies, but that to make money you have to be in at the venture capital stage.

“As long as we get in within the first 10 years of a company’s existence and there is a rising star running the company, it will still be possible to participate in a lot of the company’s growth,” he says.

The trust, which specialises in small-cap and micro-cap companies with a market capitalisation of not more than $500m, has risen 23 per cent over one year, outperforming the benchmark Russell 2000, which rose by 18 per cent. It invests primarily in privately placed convertible debentures issued by specially selected US companies.

“The US economy is surprisingly strong in light of current trends. With the exception of energy, consumer prices have remained relatively stable, while the economy has continued to expand and corporate profits have been strong.”

From his Dallas base, Mr Cleveland plans to harness Chinese growth. “We cannot ignore the strong growth of entrepreneurial management in China. However, we only want to participate in Chinese companies that are incorporated and publicly traded in the US.”

The Trust has holdings in Chinese US-listed companies, including Comtech Group, a provider of customised module design solutions for technology companies, and China BAK Battery, which specialises in replacement batteries for cellphones.

He stays away from large companies with big stakes owned by the Chinese authorities, such as China Telecom and Air China, that have listed in New York. Instead, he looks for emerging firms listed on Nasdaq and the OTC Bulletin Board.

Mr Cleveland runs his portfolio on just 50 holdings, with the top 10 making up more than half of trust assets. Approximately 25 per cent of the Trust is invested in five energy companies, including Gasco Energy, whose share price is up 90 per cent since March 2005.

“We believe that energy supplies will be unable to keep up with demand over the next few years,” he says.

“Our aim is to maintain our position in this sector, but we have also taken substantial profits. Gasco is up about 1,000 per cent since we invested several years ago and it is time to take some profits off the table.”

Lucy Warwick-Ching

 

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