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Fund manager builds on past performance

- Alan Lavine and Gail Liberman

Ron Muhlenkamp, manager of the Muhlenkamp Fund, likes home building stocks. Reason: The stocks are cheap in relation to earnings and other measures of business profitability.

Plus, the home building industry is consolidating. That could mean mergers and acquisitions.

Building stocks the fund owns include Toll Brothers and Meritage Homes.Muhlenkamp's picks could be worth a look. His fund has grown at a 27 percent annual rate over the past three years, according to Morningstar Inc., Chicago. Over the past five years, it has grown at a 14 percent annual rate. This year, the fund so far is up about 8 percent.

Although the fund invests in home builders, it avoids real estate stocks, which many believe are overvalued today. Real estate stocks, also known as real estate investment trusts or REITS for short, derive income from renting commercial, industrial and residential real estate.

Muhlenkamp keeps a close eye on inflation. He says inflation will remain at about 2 1/2 percent, so he doubts that it will affect stock prices.

What about the big U.S. government budget deficit?

No problem, as long as the economy is growing. But if the economy slows, the deficit could create problems in stock and bond markets.

Muhlenkamp likes to own companies that are beating their competition. His largest holdings include NVA, Capital One Financial, Countrywide Financial and Allstate.

In addition, he owns both Telmex and Cemex, Mexican telephone companies. In China he owns UTSI, a telephone company.

Overall, the fund's largest industrial sector holdings include software, hardware, media and telecommunications.

Be advised. Stock investments are risky. Past performance is no guarantee of future results. The fund could give back some of gains if Muhlenkamp makes poor stock picks.

The best advice: Use dollar cost averaging to invest in stock funds. You will accumulate more shares of the fund at a lower price when the fund declines in value. Over the longer term, the average cost of your investment should be lower than the market price by the time you sell.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).

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