Call it the ant-hill strategy of investment.
StockJungle.com, based in the Miracle Mile, launched a mutual fund in November known as the Community Intelligence Fund. Individual investors become members of the C.I. Fund and then make portfolio recommendations to Michael Petrino, chief investment officer, through the fund’s Web site.
The site then monitors the performance of stocks recommended by members. Those clients with hot hands are given extra weight when Petrino makes his final choices.
Evidently, Petrino has been well advised. The Wall Street Journal recently ranked the C.I. Fund at No. 19 among 3,726 funds nationwide for performance thus far in year 2000. Through April 27, the C.I. Fund rose 24.84 percent, compared with a 2.9 percent slide of the S & P; 500 Index. From its inception on Nov. 17 through the end of April, the C.I. Fund jumped 54.3 percent.
StockJungle founder Michael Witz, 28, says the C.I. Fund has several strengths compared to ordinary mutual funds, where share prices are heavily influenced by the millions of individual investors who trade every day (often online) and thus set the prices that float across the exchanges at the end of the day.
StockJungle believes its strategy of taking online suggestions from investors is a potent way of tapping into that stream of information.
“We have the finger on the pulse of what the individual investor is doing out there,” says Witz. “Our fund is a platform to leverage that knowledge.”
People scurrying across the Wall Street escarpment like so many ants can suggest investment ideas that no ivory tower dwellers would likely come across. For example, after Calpine Inc., a San Jose utility company, was recommended by a member, its stock rose 100 percent while held in the C.I. Fund portfolio, says Witz.
The C.I. Fund is growing but remains tiny by industry standards, with just $5 million in assets. If the fund increases in size, it will likely face the same barriers as larger funds finding enough good companies to invest in.
Witz is betting that by detecting early on which way the multitude of individual investors might be turning, and by uncovering good companies overlooked by others, the C.I. Fund can consistently invest in hot stocks as it grows.
StockJungle also posts selections from hot pickers on its Web site for all the world to see, and also makes the C.I. Fund portfolio available for review, with daily updates.
Of course, few, if any, other mutual funds list their holdings except in mandatory quarterly financial statements, usually filed well after the end of any particular quarter or year.
There may be some sense in this; a large fund would not want the market to know it is assembling or unloading a large position. But perhaps just as often, “managers just don’t want investors to see what they’re doing,” says Witz, adding that the mystique of money management would be lost if reduced to simple and visible trading.
Hiring Push
Michael Gardner, head of the capital markets group at downtown Los Angeles-based Wedbush Morgan Securities Inc., has hired 25 bankers and researchers in the past six months, and has another six or seven coming aboard in the next several weeks.
Why the hiring push? Like other investment bankers, Gardner is finding fertile soil in the world of private placements.
With many entrepreneurial companies needing to raise money quickly, particularly in the frenetic get-into-the-space-first worlds of the Internet and computer software, a public filing or IPO can take too much time. As a result, many investors and institutions have become hip to the advantages of owning stock in a company even before it goes public.
Here’s a case in point: Wedbush just arranged a $25 million infusion of private capital for Huntington Beach-based Sentio Corp., which is developing software for online search engines.
The deal reflects a broader move by investment bankers to act more like venture capitalists and shovel money onto a promising company’s doorstep earlier.
“You have a better chance to handle an IPO or a merger assignment if you have already established a relationship with the company in an earlier private placement,” said Gardner.
Usually, Gardner and his troops line up capital for a client, but Wedbush does operate its own merchant banking fund known as E Capital that’s run by family scion Eric Wedbush and Jeffrey Bland. “They have invested in some of the deals we have brought to them,” said Gardner.
Additionally, Wedbush has agreed to begin offering private placements online through Clay Womack’s Direct Stock Market Inc., based in Santa Monica.
Along with bankers and researchers, Wedbush has been hiring stockbrokers. “The additional brokers are warranted by the increased amount of investment banking we are doing,” said Gardner.
In other words, there is more product to sell, and that takes more salespeople.
Wedbush recently hired Andrew Duncan to handle investment banking assignments in consumer products and financial services; Christopher Jay Park to help sell underwritings through Wedbush’s syndication department; Chad Suggs to handle investment banking in biotech; and Anne E. Thompson to deal with banking assignments in entertainment and media, and to serve as vice president of research sectors.
Profiting From Patents
Pasadena-based Patent & License Exchange Inc., or pl-x.com, has signed up more than 550 companies for its service, and is angling for an initial public offering in 2001, said Alex Arrow, chief financial officer for the Web site.
The service is designed to help many companies and universities that have terrific technology but no way to use the ideas themselves. Through pl-x.com, they can post their patents and solicit bids from others that might be able to commercialize the patents.
The firm plans to charge a commission of between 5 percent and 7 percent on all patent sales made through its site, said Arrow, a former analyst for Wedbush Morgan.
Arrow believes plx.com will hit profitability before it has used up its cash reserves, “so we aren’t really under pressure to have an IPO to raise money,” he said.
Venture investors in plx.com include Massachusetts-based Softbank Corp. and the Los Angeles-based TMCT Ventures and Unionbank Cal Ventures.
Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].
