One on One: "I haven’t seen anybody operate the way we operate"

Among the lineup of self-help gurus such as Dr. Phil, Dr. Laura and Dr. Ruth, there is one on the AM radio dial who mends portfolios instead of marriages. He goes by “Dr. Gene.”

Gene W. Henssler, a financial planner and money manager has for 16 years hosted “Money Talks,” a Saturday morning investment advice show on Atlanta radio station WGST.

The former college finance professor started his own firm more than 15 years ago and today manages money mostly for affluent clients. But in 1998, he decided to parlay his local radio fame to attract dollars from less wealthy customers by starting a mutual fund.

The Henssler Equity Fund, which he co-manages with Theodore L. Parrish, is rated five stars by Morningstar Inc. and is near the top of the Chicago fund tracker’s large-cap-blend category for the one-, three- and five-year periods through Sept. 19.

Fred Katz, 62, an Atlanta radiologist and a longtime client of Mr. Henssler’s, says he was able to retire early thanks to “Dr. Gene.”

“I think the portfolio did pretty well compared to a lot of my friends’, especially my doctor friends who were in a lot of high-tech stuff, and they really got hurt very badly,” Dr. Katz says.

Mr. Henssler talks up his fund on the air, but the radio signal must not travel very far. The no-load fund is relatively small, with about $87 million in assets, more than half of that coming through 401(k) plans.

That doesn’t stop him from recommending that advisers start their own fund – if they can afford it.

Q What makes Henssler Equity stand out from other funds?

A G.H.: I haven’t seen anybody operate the way we operate. We follow the same style in the mutual fund as we do with individual clients, and that is to buy quality companies. That’s a cliche, a “quality company,” but we define it. We simply say: “We want to buy companies that will be around after the next depression rather than the next recession.”

So we will only buy companies that are rated A-minus or better by S&P, or A or better by Value Line, for financial strength. It eliminates, first off, about 32,000 stocks that we don’t have to look at. It gets us down to about 800 stocks.

We want 150,000 shares a day traded, on average, or we won’t buy it. Then we want stocks that, if you take their three- to five-year earnings projections, plus dividends, it equals 12%. That gets us to around 150 stocks. I don’t want to own any utilities, and I don’t want to own any telecom stocks. That gets you down to about 102 stocks that meet those criteria.

Q Why do you avoid utility and telecom stocks?

A G.H.: There’s no long-term growth there. We look at 3% or 4% growth, and that’s not an area I want to be invested in.

Q What do you come up with after those screens?

A G.H.: About 102 stocks, and we own 43 because we go further than that. Now what I want to do is have a peg ratio of under one, and we define peg as p/e divided by growth, plus the dividend. We want that to be less than one or less than the industry.

What it leaves you with are high-quality companies growing at a significantly faster rate than the market overall and at below market price.

What it also does is give you a portfolio that is significantly less volatile on the way down versus the way up. The only time this kind of strategy doesn’t work is when you have a market that’s gone nuts, like 1999, when the market is up 21%, and we are up 16%. On the other hand, in the year 2000, we were up 6.5%, and the market was down 9%.

Q Do you think the market rally will continue into 2004?

A G.H.: I think it’s going to be better in ’04 than it is in ’03. I think that the economy has just right now really caught fire. As the numbers look better, people get more confident, they spend more, etc.

If you have a 15% increase in earnings next year and assuming that interest rates don’t go sky-high, it’s perfectly logical that the market is going to be up 15%.

Q What stocks do you like?

A T.P.: In health care, recently we actually moved a little money out of pharmaceuticals to medical devices. The reason behind that is, medical devices is expected to grow a little bit faster than pharmaceuticals for the next two years. We bought C.R. Bard Inc. [BCR], which is a medical supply company supplying hypodermic needles, catheters and disposable supplies to hospitals cheaper than other companies within that space. We own Medtronic Inc. [MDT] also, but we trimmed it and made room for Bard.

We also trimmed Mylan Laboratories Inc. [MYL], which is a company we love. It’s a generic play, and it got to be a larger position of our portfolio; 5% or more, we usually get a little uncomfortable, so we trimmed it back. We added Pfizer Inc. [PFE] in the last couple months. It’s been beaten down. It has the largest [research and development] budget and a stellar pipeline. It’s still going to grow at a double-digit growth rate, and it’s pretty inexpensive when you look at its five-year average.

Q What other stocks?

A T.P.: In financials, we are market weighted. In there, we like MBNA Corp. [KRB], which is the credit card company that specializes in affinity cards. The company is trading at a pretty inexpensive p/e ratio, and its peg ratio, which Gene referred to earlier, is below one. The company is basically in a good cycle now. I think consumer credit quality is going to get better as the economy recovers, so this company is going to do well.

Q What kind of investor is best suited to your fund?

A G.H.: It’s for people that busted their ass all their life, accumulated a million dollars through hard work, not through inheritance, who are sophisticated enough to want to have it in the stock market but don’t want to speculate.

Q Where does it fit into a client’s portfolio?

A T.P.: As a core portfolio position. Every allocation strategy has a core position, whether that be an S&P 500 fund, and you straddle it with mid-cap and small-cap. We are that core portfolio.

Q Should advisers who are adept stock pickers start a fund?

A G.H.: Yes, if they’ve got a half-million dollars in their pocket, and they have nothing to do with it. It has been a good move for us, but they probably don’t have the deep pockets that I have. It’s not cheap to start a fund, and I don’t know how you market it. I just knew that I had $12 million to $25 million that I could get in the fund because of the radio show and the existing client base.

I would say that the marketing of the mutual fund through 401(k)s has brought more money into the business. For example, I come out to your company … and we get [the fund] into the 401(k) plan. Next thing you know, I’ve got the chairman of the board and three other officers all worth $3 million apiece as clients – bingo. We never would have had those people if we hadn’t had the mutual fund to go out and sell.

SNAPSHOT

Gene W. Henssler (above right), 63, president and chief investment officer of G.W. Henssler & Associates Ltd. In Marietta, Ga.

Assets under management: more than $800 million

Career: 1998, founded Henssler Asset Management LLC, the investment adviser for The Henssler Equity Fund, introduced that year; 1988, founded G.W. Henssler; 1986-96, professor of finance, Kennesaw (Ga.) State University; 1982-86, professor of finance, Grand Valley State University in Allendale, Mich.; 1970-82, assistant and associate professor of finance, University of Toledo (Ohio); 1966-70, assistant professor of finance, Georgia State University in Atlanta

Education: bachelor’s degree in business administration from Wayne State University in Detroit, 1962; master’s in business administration (1965) and doctorate in finance (1971) from the University of Michigan

Theodore L. Parrish, 31, principal and director of investments at G.W. Henssler

Career: 1995-present, managing research and trading activities at G.W. Henssler; 1998-present, principal and vice president of portfolio management for Henssler Asset Management and co-manager of Henssler Equity Fund

Education: bachelor’s degree in business administration from Kennesaw State University, 1994

Henssler Equity Fund (assets, $87 million): year-to-date return, 20.54%; one-year, 25.38%; three-year, -2.61%; five-year, 6.78%

Standard & Poor’s 500 stock index: ytd, 19%; 1-yr, 24.95%; 3-yr, -9.48%; 5-yr, 1.71%

Returns as of Sept. 19; periods over one year annualized

Sources: G.W. Henssler & Associates Ltd. and Morningstar Inc.