A father and son have started a mutual fund in Carmel based on an investment strategy they used for their personal investments, and which they say left Standard & Poor's 500 returns in the dust.
Bob Auer, who was vice president of investments at Morgan Stanley from 1986 to August 2007, and his father, Bryan Auer, opened Auer Growth Fund on Dec. 26.
The Auer Growth Fund applies a 12-step screening process to a universe of more than 9,000 companies, ranging from tiny firms to those with market capitalizations of more than $100 billion.
The Auers invest in firms whose stock prices they think have potential to double within a year. Currently, the fund holds 170 stocks.
"We're going to keep doing what we'd kept a secret," said Bob Auer, 46. "We kept it very secret."
Audited statements show that the Auer's personal return on investment averaged 30.2 percent a year between Jan. 1, 1987, and the end of the third quarter of 2007. The S&P 500 averaged about 10.5 percent per year in the period.
Bob Auer, a former stock columnist for IBJ, wouldn't discuss details of the strategy except to say that it focuses on companies whose profits have grown 25 percent in the most recent quarter and takes into account price-to-earnings multiples.
Bryan Auer, 72, is not an owner of the mutual fund's parent, SB Auer Funds; he works for $1 a year as an analyst, Bob said. "He's a smart employee," Bob said of his father. "He's here at the office every day."
Bryan Auer in the early 1970s invented Icy-Hot, a product for sore muscles that competes with Bengay. It was later was sold to GD Searle, a Chicago company.
Bob owns 90 percent of SB Auer, while the balance is owned by David Gilreath and Ron Brock, who own Sheaff Brock Investment Advisors LLC, at 104th and Meridian streets. Gilreath also is a former stock columnist for IBJ.
The new fund shares office space and support with Sheaff Brock. Some back-office operations for the mutual fund are outsourced to Unified Fund Services Inc., an Indianapolis company that provides similar services to at least two other Indiana-based mutual fund companies, The Archer Funds in Indianapolis, and SMI Fund in Columbus.
What stocks are in Auer Growth Fund?
One is Hurco Cos. Inc., the Indianapolis firm that makes machine tools for factories. International sales put Hurco in a strong position to grow, Auer said. Auer said he and his father have invested in Hurco two other times in the past 10 years, each time using the same formula.
Another stock is Noble Corp., a deep-sea oil drilling company headquartered in Houston.
Still another is Jackson, Miss.-based Cal-Main Foods Inc., one of the nation's largest egg producers.
Bob Auer said his new fund has accumulated $40 million, mostly from him and his father's personal wealth.
Auer said his goal is to push the fund to $100 million under management by the end of the year, about the same amount he managed when he left Morgan Stanley.