Order Reprints

By Nathan Peck | MiBiz
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

WEST MICHIGAN — As investors look for opportunities in emerging markets around the globe, Ralph Allen sees they may be missing gems stateside.

Allen, managing principal of NAV Capital Partners LLC, brings more than 25 years of financial experience to asset managers and their clients. The eight-person firm consults with financial managers around the country, serving as an “advisor to advisors,” to uncover what could be hidden opportunities.

Allen has worked with some of the largest financial firms in the country, such as GE Capital, AXA Group and Merrill Lynch, and started NAVCAP in 2009 as a way to bring that experience to the investment community.

“I have always been an a entrepreneur, but I’ve worked for large corporations. After 24 years experience, I didn’t want to give up the experience in my normal core competency — I didn’t want my skills set to get lost in the shuffle,” Allen told MiBiz. “I could capitalize on my experience in the marketplace and help these unique managers get some shelf space at these firms. I want to find really unique ideas and bring them to the marketplace on a wholesale level.”

Allen recently spoke with MiBiz about the opportunities that exist with “boutique” funds and their managers.

MiBiz: What is 2011 looking like —where are you seeing value?

Allen: Where the scarcity of resources is, is in equities. It is the unloved place right now. Over the last 20 months, find where all the traffic is — that is where you don’t want to be. Most investors are in a flight to quality and safety. The problem there is everyone is going there.

I look at U.S. domestic equities, small and mid-level value, dividend-paying stocks where there is not a lot of love. Of course, you want to get there before anyone else and get out before everyone else gets there.

There are a lot of opportunities in (Exchange Traded Funds). I am looking at copper mine ETFs and uranium ETFs. China is building new nuclear power plants and has stockpiled 25 percent of the world’s supplies. There is an insatiable desire for metals around the planet.

MiBiz: How are you dealing with the volatility in the markets?

Allen: Diversification is still key; 90 percent of return is created by your asset allocation, rather than particular securities decision. A lot has been written about diversification — if you had a balanced portfolio with 60 equities, 40 percent fixed-asset, or even a 50-50 split — you would have taken a hit, but made it back, depending on the mix between stocks, bonds and cash.

The problem today is the pendulum is swinging too far in an exorbitant direction. Getting to this point with everyone looking to emerging markets, even commodities, and everyone is overlooking the domestic stocks.

You have to go where scarcity of resource is or you find yourself allocating to the underperforming sectors of the marketplace. Look at something that is capturing all the dollars right now, fixed income and emerging markets. I’m not saying that there isn’t room to run, (but) they’re in a secular growth phase. Low interest rates are like fertilizer: It should stimulate growth. China has been playing catch-up, (and) they have a lot of room to grow. It is an emerging giant. But there is a wrestling match going on between central government and market forces. They are dancing on that razor blade right now.

MiBiz: How should investors respond?

Allen: On a macro level, they need to have a balanced portfolio. If you are younger, invest more on equities and less on fixed-income. Rebalance periodically. It takes some of the market mechanisms out of the equation. Look for managers that can provide alpha.

There is a passive school and an active school. Some just want to buy the index, the beta. Some want the alpha, and some mix.

One thing is for sure, there is opportunity in the market.

The fundamentals of these stocks are very strong. (With) low valuation, they’re under appreciated. The Fed’s monetary and fiscal policy is lending credence to these stocks. The fertilizer is there.

Employment and inflation are lagging indicators. Typically you won’t find those (improving) until the recovery is fully established. It took several years to get into this mess, and it will take several years to get out of this.

It takes time to deleverage, reestablish your footing and get going again. We are still unwinding that leverage train. It takes years to unwind. I still think there are great companies in the marketplace that are selling below intrinsic value, strong cash flow, good managers that take advantage of that. There are a lot of opportunities out there for investors.

MiBiz: What has you concerned looking ahead?

Allen: We’ve been stimulated by government policy. I think of it as a push-start, (but) at some point in time you have to start going on your own. There is risk there. Can the economy keep going based on the government pulling back? We are in that magic phase — is that enough? QE2 is the only risk I see. There may be a lag or a gap there, but I’m not saying a double-dip is coming.