Muhlenkamp Fund


Muhlenkamp & Company, Inc. 5000 Stonewood Drive, Suite 300 Wexford, PA 15090-8395 (877)935-5520


Seeks to maximize total return to its shareholders through capital appreciation, and income from dividends and interest, consistent with reasonable risk.


Invest in the common stock of highly profitable companies, as measured by Return on Equity (ROE), that sell at value prices, as measured by Price-to-Earnings Ratios (P/E).

Style All-Cap Inception Date 11/1988 Ticker Symbol MUHLX CUSIP 962096103 Minimum Initial Investment $1,500.00 † Sales Charge None †† Expense Ratio 1.27%
† Or


Ronald H. Muhlenkamp, Portfolio Manager, CFA, has been active in professional investment management since 1968. He is a graduate of both M.I.T. and the Harvard Business School. Jeffrey P. Muhlenkamp, Investment Analyst and Co-Manager, has been active in professional investment management since 2008. He is a graduate of both the United States Military Academy and Chapman University.


The majority of Ron Muhlenkamp’s long-term investment assets are managed by Muhlenkamp & Company, by being invested in the Muhlenkamp Fund and as one of the Separately Managed Accounts of the Advisory firm. The majority of Jeff Muhlenkamp’s long-term investment assets are invested in the Muhlenkamp Fund.

$200 if the Automatic Investment Plan (AIP) is chosen. Automatic Investment Plans do not assure a profit and do not protect against a loss in declining markets. Although the Fund is no-load, investment management fees and other expenses still apply. Please refer to the prospectus for further details.



Company Industry

% of Net Assets

Industry % of Portfolio

Alliance Data Systems Corporation JPMorgan Chase & Co. Sonic Automotive, Inc. - Class A State Street Corporation Celgene Corporation Philip Morris International, Inc. Oracle Corporation Microsoft Corporation Delta Air Lines, Inc. American International Group, Inc.

IT Services Diversified Financial Services Specialty Retail Capital Markets Biotechnology Tobacco Software Software Airlines Insurance

8.61 4.87 4.64 4.37 4.32 4.29 3.92 3.75 3.66 3.40

8.6 10.6 6.8 4.4 6.8 4.3 7.7 7.7 5.6 6.6

Number of Equity Holdings 45 Total Net Assets $488,511,517.11 Average ROE 15.97% ‡ Long-Term Earnings Growth 15.88% ‡ Average P/E 20.97‡ Average P/E (Forward): 15.83‡ Portfolio Turnover (2012) 38.09% ‡‡ ‡ Source: Bloomberg as of 12/31/13 Note: Average ROE and P/E has been adjusted to provide a more meaningful valuation. ‡‡ Audited Return on Equity (ROE) is a company’s net income (earnings), divided by the owner’s equity in the business (book value). Price-to-Earnings Ratio (Forward) or Estimated P/E is an estimate of the price-to-earnings (P/E) ratio where the earnings (E) are forecast or estimated future earnings for a company. Long-Term Earnings Growth is not a forecast of the Fund’s future performance.

Fund holdings are subject to change and are not recommendations to buy or sell any security.

Year to One Past 3 Past 5 Date Year Years Years Return Before Taxes 34.43% 34.43% 12.95% 14.99% Return After Taxes (1) 33.44% 33.44% 12.13% 14.49% Return After Taxes (2) 20.29% 20.29% 10.26% 12.18% S&P 500*
(1) Return (2) Return

Past 10 Past 15 Years Years 4.23% 6.95% 3.70% 6.48% 3.52% 5.86% 7.41% 4.68%

32.39% 32.39% 16.18% 17.94%

after taxes on distributions** after taxes on distributions and sale of Fund shares**

Performance data quoted, before and after taxes, represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data shown is current to the most recent quarter end. * The S&P 500 is a widely recognized, unmanaged index of common stock prices. The figures for the S&P 500 reflect all dividends reinvested but do not reflect any deductions for fees, expenses, or taxes. One cannot invest directly in an index.

** After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your situation and may differ from those shown. Furthermore, the after-tax returns shown are not relevant to those who hold their shares through taxdeferred arrangements such as 401(k) plans or IRAs. Quasar Distributors, LLC., Distributor 1/14

Amended Transcript
Muhlenkamp and Company January 23, 2014/4:15 p.m. ET SPEAKERS Anthony W. uh!en"amp #ona!d $. uh!en"amp PRESENTATION T. Muhlenkamp %ood a&ternoon, e'eryone. ( )ant to than" you &or *oinin+ us. ,or some o& you )ho may -e &irst.time attendees, )hat )e norma!!y do durin+ this 30.45 minutes is turn the podium o'er to #on, +et him to )a!" us throu+h )hat he/s seein+, startin+ &rom the -i+ picture and )or"in+ his )ay do)n to the speci&ics. And the !ast 10.15 minutes, )e/!! open it up to ta"e 0uestions &rom you a-out anythin+ you/d care to discuss, )hether )e touched on it durin+ the prior ha!& hour or not. And, *ust to remind you, #on is the 1ort&o!io ana+er2he/s the one that/s ma"in+ a!! the decisions on )hat to in'est in and )hy, so )e/re !oo"in+ &or)ard to hearin+ )hat he has to say. With that -ein+ said, 3ad, )hy don/t you +et us started on )hat you see happenin+, the -road.-ased -i+ picture, -oth in the po!itica! and economic spheres ri+ht no). R. Muhlenkamp 4ome o& the thin+s that )e/'e -een ta!"in+ a-out the !ast three or &our years came to &ruition in 2013. We had a +ood year, -ut )e/'e -een )arnin+ peop!e &or a coup!e years that interest rates shou!d mo'e up and, in 2013, they did. (& you/re )atchin+ 53s and pass-oo" sa'in+s, you sti!! ha'en/t seen interest rates mo'e up on the short end o& the sca!e, -ut a !itt!e &urther out 6they did7 and e'ery-ody/s -enchmar" is Treasuries. The 10.year Treasury )ent &rom 1.89 to around 39 at yearend: the 30.year Treasury )ent &rom a-out a 2.59 to a-out 49 at yearend: so it )as 'ery hard to ma"e money in -onds !ast year. We do thin" that pro-a-!y ;09 or ;59 o& the dama+e has -een done. We thin" that 10.year Treasuries shou!d -e on the order o& 3.259 to 3.59, and 30.year Treasuries on the order o& 4.259 to 4.59, -ut it/s sti!! 'ery di&&icu!t to ma"e any money on the short end. (/m a-out to +o -ac" to the oney 4ho) in ,!orida 6January 2<.,e-ruary 1, 20147 )hich dra)s a !ot o& Americans &rom a!! )a!"s o& !i&e. ,!orida +ets a -it more retirees than the other oney 4ho)s, so the -i+ &ocus !ast year )as =$o) can )e +et more income on our port&o!io>? (n response, )e came -ac" and )rote an essay tit!ed, Be Careful Dealing with Creative Sources of Yield. ,o!"s, it/s 'ery di&&icu!t to +et income on your port&o!io. ost o& the thin+s that are !e+itimate ha'e -een done. @onds had -een -id up too hi+h: uti!ities, )e thin", are on the rich side: most #E(Ts are on the rich side. @ut, i& you demand income, Wa!! 4treet )i!! promise it: &or eAamp!e, )e heard peop!e !ast year ta!"in+ a-out payout as i& it )ere yie!d. (n some cases, peop!e )ere +ettin+ principa! -ac" and they )ere ca!!in+ it yie!dB We )arn you: it/s 'ery hard to +et decent yie!ds or incomes and sti!! ha'e your assets protected in this mar"et. (& you demand it, you can +et products that promise it, -ut ( don/t thin" the promises )i!! pay o&&. Any)ay, -onds ha'e -een done: they turned in the midd!e o& !ast year. We/'e -een )arnin+ you &or a coup!e years a-out commodities. 5ommodities, -y and !ar+e, !ast year )ere do)n, so it )as 'ery hard to

ma"e money in commodities. (t )as hard to ma"e money in emer+in+ mar"ets, inc!udin+ 5hina. 5hina is tryin+ to redirect its economy2it/s a s!o) process, these thin+s a!)ays ta"e !on+er than they shou!d. We didn/t speci&ica!!y )arn you a-out emer+in+ mar"ets, -ut )e did a'oid them, so that, too, )or"ed pretty )e!! &or us !ast year. 1art o& the tric" !ast year )as to -e in C.4. -ased stoc"s2and not in -onds or commodities or emer+in+ mar"ets. We a'oided those. (t/s -een 'ery hard to ma"e money in cash, as you "no). The ca!endar "eeps turnin+ o'er and time "eeps passin+, -ut Europe rea!!y hasn/t so!'ed its pro-!ems2 it/s *ust no !on+er in the head!ines. Dou/'e a!! pro-a-!y noticed that re+ard!ess o& the crisis, a&ter a )hi!e, it/s no !on+er ne)s and it mo'es o&& the head!ines. ay-e the C.E., may-e En+!and, may-e parts o& Europe may +et interestin+ -e&ore too !on+. Actua!!y, eAico cou!d +et interestin+ -e&ore too !on+, -ut )e thin" it/s a -it ear!y. We ha'e not put money in any o& those areas *ust yet. Where )e +et intri+ued, i& you )ant me to +et -u!!ish, )e can ta!" a-out natura! +as )hich )e addressed at our seminar in Fo'em-er. We can ta!" a-out -iotech: )e ha'e a num-er o& -iotech stoc"s that did 'ery )e!! &or us !ast year. We can ta!" a-out )hat/s happenin+ in education: the di&&icu!ty there is ( can/t &ind a +ood )ay to ma"e money on it &or an in'estor. And )e can ta!" a-out C.4. manu&acturin+, part!y -ecause our ener+y is +ettin+ cheaper, that is, )e ha'e natura! +as a'ai!a-!e. There is a mo'e to -rin+ a num-er o& manu&acturin+ *o-s -ac" to the C.4. &rom 'arious other p!aces. C.4. manu&acturin+ !oo"s to us !i"e it/s +oin+ to -e a +ood p!ace to -e +oin+ &or)ard. That does not necessari!y mean that there/s +oin+ to -e resur+ence in C.4. *o-s. There/s a co!umn in today/s Wall Street Journal tit!ed =Why $irin+ Ga+s @ehind E'en as C.4. ,actories $um.? We eApect hirin+ to continue to !a+, simp!y -ecause the +o'ernment current!y is doin+ e'erythin+ it can to s0ueeHe emp!oyers. When po!iticians ta!" a-out taAin+ the rich, i& you cross out the )ord =rich? and put in the )ord =emp!oyer,? you/re pretty much ta!"in+ a-out the same peop!e. And, i& you pena!iHe emp!oyment, you +et !ess emp!oyment. We do thin" the C.4. economy )i!! +ro) this year, pro-a-!y on the order o& 2.59 to 39, )hich )ou!d -e +ood, eAcept that )e/'e ne'er rea!!y had the snap-ac" &rom the recession o& &i'e years a+o. The ca'eat is there/s a !ot o& thin+s out there that cou!d sti!! -!o) up, )hether it/s -ased in Europe, )hether it/s -ased in the Cnited 4tatesIthere are 'arious thin+s that cou!d upset the app!e cart. We "no) the ris"s are there. Whether they )i!! occur and )hen they mi+ht occur, )e thin", is un"no)a-!e. 4o, )hat )e/re tryin+ to do, )hat )e a!)ays try to do, is to o)n +ood companies at reasona-!e prices. We continue to &ind +ood companies, -ut a&ter a pretty nice mo'e in prices !ast year, it/s +ettin+ tou+her to &ind those +ood companies that are se!!in+ cheap!y. That/s a summary o& the -i+ picture. Where do you )ant to +o &rom there> T. Muhlenkamp Dou mentioned the snap-ac" that hasn/t occurred. Dou/re re&errin+ to an economic snap-ac", not necessari!y a mar"et snap-ac", is that correct> R. Muhlenkamp That/s correct. (n &act, in most cases, the ar+ument )as &i'e years a+o, the deeper the recession, the stron+er the snap-ac". We ne'er +ot the snap-ac" this time. (n &act, )hen ( as" +roups o& peop!e, a-out ha!& o& them te!! me they thin" )e/re sti!! in recession. (& you !oo" at rea! %ross 3omestic 1roduct J%31K, that is %31 ad*usted &or in&!ation, and you do it per capita, )e are *ust no) +ettin+ -ac" to a rea! %31 per capita that/s simi!ar to )here )e )ere in 200L. Dou/'e a!so seen head!ines that the a'era+e &ami!y income, certain!y ta"e.home pay, is not -ac" to )here it )as in 200L. That/s )hy so many peop!e &ee! )e/re sti!!


in recession. ,o!"s, most peop!e don/t thin" a recession/s o'er unti! they/re -ac" at the o!d hi+hs, )hich is di&&erent &rom either the economic de&inition, or )hat you )ant to do as an in'estor. 4o no) the mar"ets ha'e come -ac", -ut they/re -ac" a !itt!e a-o'e )here they )ere in /0L. That )as se'en years a+o. Forma!!y, i& the economy +ro)s at 29 or 39, )hich it shou!d, )e shou!d -e 209 ahead o& )here )e )ere in /0L. When ( )as on a pane! a )ee" a+o, ( said, =,o!"s, thin+s aren/t -ad, -ut they/re not near!y as +ood as they cou!d ha'e -een,? and, o& course, you ne'er "no) )hat cou!d ha'e -een. 4o, our -est case in the C.4. is the economy +ro)s at 2.59 to 39, )hich is decent +ro)th. We thin" emp!oyment )i!! continue to !a+ -ehind the economy, -ut there are any num-er o& thin+s o'er the !ast t)o or three years2'ery &e) o& the ris"s that you/'e heard a-out in the !ast t)o or three years ha'e -een dea!t )ith in a curati'e &ashion. They/'e -een postponed: )e/'e "ic"ed the can do)n the road e'ery time )e cou!d. Dou "no), 5on+ress scared themse!'es !ast &a!! and *ust no) did a -ud+et, -ut )e/re a-out to run into the de-t cei!in+ a+ain in a month or t)o. 4o none o& this stu&& has -een so!'ed2it/s -een pushed do)n the road and has +otten out o& the head!ines, -ut it/s sti!! there, and many thin+s sti!! cou!d hit us. 4o )e/re tryin+ to na'i+ate this )ith a )ary eye to the )ind, sayin+ )e cou!d +et hit -y some o& the stu&& -ecause it hasn/t -een so!'ed. That/s the -est eAp!anation ( can +i'e you. T. Muhlenkamp Get/s -rin+ that do)n to more o& a mar"et !e'e!. (& the economy has not snapped -ac", and the mar"ets are -ac" a-o'e )here they )ere in 200L, is there a +ap -et)een )hat the mar"ets ha'e done and the economy. And, i& so, ho) does that +ap c!ose> R. Muhlenkamp We thin" the mar"et is &air!y priced i& in&!ation stays at 29 or -e!o). M& course, in&!ation, ri+ht no), is a-out 1.L9, )hich is )hy )e say interest rates on the 10.year Treasury shou!d -e a-out 3.259, and interest rates on the 30.year Treasury shou!d -e a-out 4.259, and they/re not too &ar &rom there. @ut the ,ed 6,edera! #eser'e7 is conscious!y tryin+ to +et in&!ation up. (& you had to!d any-ody prior to &i'e years a+o that the ,ed )ou!d -e tryin+ to +et in&!ation up instead o& do)n, they/d say no, the ,ed/s *o- is to "eep it do)n. The ,ed has a dua! *o-: one is to "eep in&!ation under contro!, and no) they/re tryin+ to mo'e it up. The other is to +et emp!oyment up. They ha'en/t done either one, -ut they/'e said, =We/'e mana+ed to +et the stoc" mar"et up.? We!!, (/m sorry to te!! you, that/s not their mandate. 4o they sa) )here the arro) hit and said, =Mh, )e mana+ed to do this,? that/s not their *o-. The ,ed has -e+un to taper, )hich ( thin" is a +ood thin+. y &ear in the midd!e o& the summer 620137, )hen they )ere set up to taper their -uyin+ o& -onds and mort+a+es and dec!ined to do it, ( thou+ht 0uantitati'e easin+ may -e permanent. We had a!! assumed &or the !ast &i'e years that )hat the ,ed )as doin+ )as on an emer+ency/ temporary -asis unti! thin+s +ot -ac" on their &eet. We thin" that the ,ed )as tryin+ to so!'e a &isca! pro-!em2 re+u!ations and taAes on emp!oyers2)ith a monetary too!, and it cou!d not -e done and it has not -een done. @ut the !on+ and short o& it is )e eApect some +ro)th in the economy, )e eApect emp!oyment to remain modest, and )e/re tryin+ to "eep a )ary eye &or the thin+s that sti!! cou!d hit us.


T. Muhlenkamp 4o the stoc" mar"et/s &air!y priced, and you thin" interest rates are c!ose to norma!. Are you &indin+ any 'a!ue2> R. Muhlenkamp Gon+.term mar"et rates are c!oser to norma!. The ,ed/s sti!! +ot their arm on the sca!e on the short end. 4o, )e/re tryin+ to &ind companies that can dea! )ith that. (& the economy +ro)s at 2.59 or 39, and i& you ha'e a company that can +ro) re'enues -y 59, )e thin" that +ets the mar"ets/ attention. What/s -een interestin+ is corporate earnin+s ha'e he!d up 'ery )e!!, part!y -ecause corporations ha'en/t spent money on ne) hires or on -ui!din+ p!ants. They ha'en/t had enou+h con&idence in the &uture to +o out and spend money. 1!us, i& economic +ro)th is on!y 29, you can usua!!y +et that out o& =de-ott!enec"in+? and producti'!ated acti'ities, so earnin+s ha'e -een stron+er than many peop!e eApected. We thin" that/s +oin+ to +et tou+her in 2014 than it )as in 2013. We/re ma"in+ +ood money on air!ine stoc"s. (t )on/t -e a surprise to anyone to say air tra'e! is no !on+er !uAury tra'e!: it/s made -usses !oo" com&orta-!e. @ut )hen thin+s ti+htened up on the air!ines, they &ina!!y cut -ac" on -uyin+ ne) p!anes. JWhat air!ines had a!)ays done, i& they made a -uc", )ou!d -e to -uy ne) airp!anes.K 4o they are ma"in+ decent money today, and )e/re ma"in+ decent money on the stoc"s, -ut it/s not -ecause peop!e &ind air tra'e! p!easant. (& you/re +oin+ to +o somep!ace, it/s sti!! easier than dri'in+ or )hate'er, so peop!e are &!yin+. ( thin" Warren @u&&ett has said on occasion, air!ines ha'e !ost money net since the Wri+ht -rothers. @ut, ri+ht no), they/re ma"in+ decent money and )e/re ma"in+ decent money on the stoc"s. We thin" )hat/s +oin+ on )ith natura! +as )i!! ha'e the e&&ect o& +radua!!y pu!!in+ do)n crude oi! prices, and &ue! is a ma*or cost &or the air!ines, so )e/re ma"in+ decent money on air!ines. Ear!ier, ( mentioned -iotech: )e had +ood success this past year on a coup!e o& -iotech companies. What/s -een happenin+ in -iotechno!o+y2-ui!din+ on the human +enome that )as mapped a decade a+o 2is rea!!y astoundin+. We/re tryin+ to put to+ether a presentation &or one o& our &uture seminars, as to )hat is +oin+ on and )hat this has a!!o)ed, -ut, the !on+ and short o& it is, there are amaHin+ thin+s happenin+ in -iotech, and )e/re +ettin+ a piece o& that. We made +ood money !ast year in A!!iance 3ata 4ystems JA34K. The ma*or credit card companies inc!udin+ aster5ard, Nisa, 3isco'er 5ard, a!! did )e!! !ast year. Whi!e A34 does not put their name on the card2it )ou!d sho) up as the !oca! merchant2A34 specia!iHes in minin+ the data. They pro-a-!y "no) more a-out you and me than )e do, -ecause, i& )e use our credit card at a!!, they "no) )here )e shopped, )hat )e -ou+htIand they use that to he!p set up mar"etin+ p!ans &or their c!iente!e, &or the retai!ers )ho use their card. 4o, A34 is a credit card mar"etin+ &irm and 5e!+ene 5orporation J5EG%K is a -iotech company: they/re -oth 25 to 30 times earnin+s2and )e sti!! o)n them, )hich is "ind o& unusua! &or us. They/'e dou-!ed and trip!ed &or us, -ut )e thin" there is enou+h opportunity +oin+ &or)ard that )e continue to o)n them. ost o& the rest o& )hat )e o)n are +ood companies se!!in+ at 10 or 12 or 13 mu!tip!es. We do thin" there is a !itt!e &urther room to run in the &inancia!s. (& you/'e -een )ith us, you "no) that )hen ario 3ra+hi, 1resident o& the European 5entra! @an", stood up and said, =We )on/t a!!o) -ad thin+s to happen,? )e thin" that too" the ris" o&& o& the C.4. -ased internationa! -an"s !i"e J.1. or+an or 5iti+roup. We thin" there is room &or that to +o yet. @ut it/s -ecomin+ much more a stoc" pic"er/s mar"et, much more indi'idua! companies )ithin indi'idua! industries that )e see +oin+ &or)ard. T. Muhlenkamp ar"ets -ein+ &air!y priced, are you &indin+ cheap companies to in'est in>


R. Muhlenkamp (t/s +ettin+ a )ho!e !ot tou+her than it )as a year a+o. When prices mo'e up, )hen the economy +ro)s at 39 and the mar"et mo'es up -y 309, it/s tou+her to &ind cheap companies. 4o, )e thin" the ones that )e o)n2or i& )e can &ind those )ho are +ro)in+ nice!y2)e thin" that )i!! +et a premium. @ut )e/re not &indin+ as many cheap companies as )e did a year a+o. T. Muhlenkamp (s it &air to say )ith A!!iance 3ata 4ystems JA34K and 5e!+ene that ri+ht no) you/re )i!!in+ to pay a !itt!e more &or that +ro)th> R. Muhlenkamp We/re not -uyin+ more, -ut )e/re monitorin+. We !i"e to -uy companies )hen they are +ood and cheap, and ride them as !on+ as they/re meetin+ our eApectations, and -oth o& those companies are. At some point, i& they +et hea'y enou+h, you start to sca!e -ac" a !itt!e -it. (n some cases, )e/'e so!d some ca!!s a+ainst some o& the stoc"s, *ust to +et some option premium. eantime )e/re !oo"in+ &or other companies, -ut it/s +ettin+ tou+her. T. Muhlenkamp And is that )hat +enerated the capita! +ain distri-ution !ast year> R. Muhlenkamp Des. We har'ested a &e) in'estments that had accumu!ated &or us o'er a period o& time. y +uess is there )i!! pro-a-!y a!so -e2( hope there is a capita! +ain this year, part!y -ecause the on!y )ay )e cannot ha'e one is i& the mar"et tan"s -i+ time. And ( )ou!dn/t -e surprised i& )e had a 59 to 109 correction this year. ( don/t thin" )e/!! +et a -i+ do)ndra&t un!ess one o& those ma*or ris"s that ( ta!"ed a-out comes into p!ay. T. Muhlenkamp Dou ta!"ed a-out the stoc" mar"et, -ut you started ta!"in+ a-out interest rates ha'in+ corrected to )here you thin" they ou+ht to -e on the !on+ end> R. Muhlenkamp Des. T. Muhlenkamp Are there any 'a!ues or opportunities in -onds ri+ht no)> And, i& not, )here shou!d peop!e +o i& they ha'e to =ha'e income?> R. Muhlenkamp (/'e ne'er met anyone )ho needed income. (/'e met a !ot o& peop!e )ho need spendin+ money. (ncome is a de&inition o& the (#4: their de&inition o& principa! and income is ho) they determine your taAes. 4o, )e ha'e a !ot o& peop!e )ho need spendin+ money, and )e -e!ie'e i& you ha'e assets you can a!)ays +et spendin+ money. Dou can se!! the asset, you can mort+a+e the asset: you can do 'arious "inds o& thin+s. @ut the idea that ( )as tau+ht2my &o!"s said protect the principa!, *ust spend the income. The di&&icu!ty is, i& in&!ation is 29 J)hich the ,ed is tryin+ to doK, your assets ha'e to +ro) -y 29 *ust to protect the purchasin+ po)er o& the principa!. 4o this is +oin+ to -e an interestin+ year. (& peop!e are determined that they need )hat the (#4 ca!!s income, they/re +oin+ to ha'e a tou+h road. They had a tou+h road !ast year: )e thin" it/s +oin+ to -e a tou+h road +oin+ &or)ard. We sti!! are not -uyers o& -onds, and most o& the thin+s that )ere -ond su-stitutes !ast year had a tou+h time. 3urin+ /12, uti!ities )ere -id up: #E(Ts )ere -id up. A!! the thin+s that are =-ond su-stitutes? )ere -id up, so that !ast year it )as 'ery tou+h to ma"e money in these thin+s. We thin" they/re sti!! &u!!y priced.


T. Muhlenkamp 4o, &or our c!ients, ho) do you mana+e the port&o!io to +enerate that cash &!o) that you ta!"ed a-out> R. Muhlenkamp (& you need money, you -!eed o&& some o& the asset. Dou "no), my!a), )hen ( started mana+in+ her money, )e cut her income. We +ro) her assets and )e send her a chec" e'ery month that/s &or spendin+ money, and then )e sit do)n at the end o& the year )ith the he!p o& her accountant and &i+ure out, o& the money that )e sent her, )hether some o& that )as )hat the (#4 ca!!s income, )hether some o& that )as )hat the (#4 ca!!s capita! +ains, and )hether some o& that )as principa!. What she "no)s is her assets are +ro)in+, and she/s spendin+ the money she needs to spend, and )e ma"e sure e'ery year that her assets are +ro)in+ enou+h &or the spendin+ money. (/'e -een doin+ this &or 30 years, and it/s sti!! 'ery hard &or peop!e to chan+e their minds a-out principa! and income to assets and spendin+ money. @ut ri+ht no) the ,ed, on purpose, is s0ueeHin+ peop!e/s income. That/s )hy )e ca!!ed it the @ig Squeeze !ast sprin+ )hen )e had our ay seminar. 6#e&er to the =4eminars O We-casts? pa+e o& our )e-site &or an archi'e o& the presentation.7 They/re !itera!!y tryin+ to dri'e peop!e out o& 53s and into 'arious other p!aces, and the di&&icu!ty is there are ris"s in those other p!aces that not e'ery-ody is a)are o&. (n particu!ar, )e thin" those ris"s are there today i& you/re tryin+ to +et )hat the (#4 ca!!s =income.? (& you demand &rom your stoc" -ro"er that he +ets you income, he )i!! +et you somethin+ that he ca!!s income, -ut it mi+ht -e payout o& principa!, or 'arious "inds o& thin+s. A+ain, -e)are o& creati'e sources o& yie!d. There are no ris".&ree income in'estments out there today. unicipa! -onds may -e +ood, un!ess, o& course, they/re )ith 3etroit or $arris-ur+. Fo), &or 30 years you didn/t ha'e to )orry a-out the 0ua!ity o& municipa! -onds. Today, you do. (& there/s a )arnin+ that ( can +i'e, it/s don/t *ust in'est &or income. Dou/'e +ot to chec" it out. T. Muhlenkamp (s it &air to say it/s a muni -ond pic"er/s mar"et in the same )ay it/s a stoc" pic"er/s mar"et> R. Muhlenkamp 1retty much, yes. ,or 30 years, durin+ most o& that time, the economy +re), so there )asn/t much in'estment ris" in -onds, and )hen interest rates )ent &rom 139 to 19, there )as no interest rate ris" in -onds. ( don/t "no) anyone )ho thin"s that interest rates are +oin+ !o)er &rom here: they a!most can/t at the short end. 4o a!! those studies that ha'e -een done &or the !ast 30 years, ( -e!ie'e are irre!e'ant to ho) -onds )i!! act +oin+ &or)ard. 4toc"s are +oin+ to -e more 'o!ati!e than they )ere !ast year, -ut -onds are +oin+ to -e more 'o!ati!e than they ha'e -een &or 30 years. @e care&u! out there. T. Muhlenkamp And you said stoc"s are &air!y priced, -ut )hat does that mean in terms o& eApected returns +oin+ &or)ard> R. Muhlenkamp The stoc"s are priced to return a-out L9 or ;9 a year, -ut i& in&!ation/s 29 and -onds are 39, )e thin" L9 or ;9 is )orth -ein+ in the +ame. T. Muhlenkamp @ut it )on/t -e e'ery year>


R. Muhlenkamp Fo. (t comes in spurts. Gast year )e did 309 6the annua!iHed return o& the uh!en"amp ,und 34.4397: )e/re not +oin+ to do 309 6return7 a+ain this year. The stoc"s )ere dri'en &ar too !o) in /0;./0<, on a com-ination o& the &inancia! crisis and mar".to.mar"et accountin+. They )ere dri'en &ar -e!o) )hat )as &air 'a!ue. They ha'e no) reco'ered that, and stoc"s are on!y &air i& in&!ation/s 29 or !ess. Fo), the ar+ument is that in&!ation on!y +oes hi+her i& +ro)th +oes hi+her. We!!, that -ecomes an interestin+ )a!tH -et)een the t)o, as to )hether one/s +oin+ up &aster than the other. T. Muhlenkamp 3o you thin" there is in&!ation -ui!t into this scenario> That has to -e one o& the thin+s you/re monitorin+ 2 R. Muhlenkamp The ,ed printed a!! this money: it/s no) sittin+ in the -an"s. (& the -an"s start !endin+ it2i& companies start -orro)in+ it and -an"s start !endin+ it2then, the ,ed/s +oin+ to ha'e to sop that up. And the ,ed has tapered2they/'e +one &rom -uyin+ assets at P;5 -i!!ion a month to PL5 -i!!ion a month. That/s a !on+ )ay &rom net se!!in+. We ha'e not -e+un to s0ueeHe, )e/re on!y =+oosin+? at a !itt!e -it s!o)er rate. 4o, at that rateI We/'e +ot this )ho!e year that they/'e 6the ,ed7 -asica!!y said that they/re +oin+ to cut it -y P10 -i!!ion a month each meetin+. Each meetin+ is siA )ee"s apart, so i& you do se'en times siA )ee"s, it/s 42 )ee"s, or *ust a-out a year. 4o, at the current rate, it/!! -e yearend -e&ore they 0uit +oosin+ the economy. @ut i& !endin+ +oes up, -orro)in+ and !endin+ -y corporations &rom -an"s, then that eAtra P2 tri!!ion that is sittin+ out there in the -an"s a!! o& a sudden -ecomes in&!ationary. #emem-er ho) much peop!e &eared in&!ation &our years a+o, &i'e years a+o )hen they )ere puttin+ this out there> That/s sti!! there, potentia!!y. 4o &ar, the money/s -een sittin+ in the -an"s, and i& -an"s start !endin+ and companies start -orro)in+2and peop!e start -orro)in+2then, they/re +oin+ to ha'e to sop that up, and they ha'en/t e'en -e+un to thin" a-out that yet. T. Muhlenkamp 4o !et me &o!!o) that train o& thou+ht. ar"ets are &air!y priced to do L9 or ;9 )ith current in&!ation at 29. (& in&!ation +oes up, then those 'a!uations ha'e to -e re'ised. R. Muhlenkamp Then it/s a 0uestion o&, do you ha'e companies )ho can +ro) their re'enues and their earnin+s &aster than in&!ation, or not> And )hen ( ta!" a-out a stoc" pic"er/s mar"et today, that/!! happen in spades )hen that happens. (t/!! -e tou+her +oin+ &or)ard. T. Muhlenkamp Fo) you said that you/re &indin+ opportunities in -iotech: C.4. manu&acturin+: and education, )hich you/re not comp!ete!y sure ho) to ma"e money at yet: and2 R. Muhlenkamp And natura! +as. T. Muhlenkamp And natura! +as. Dou/'e spo"en a !ot a-out natura! +as. $o) does that sho) up in our current port&o!io, i& you ta"e a !oo" at our top ten ho!din+s> R. Muhlenkamp (t doesn/t sho) up in the top ten. We/'e -ou+ht a ha!& doHen di&&erent companies, none o& )hich ha'e


dou-!ed or trip!ed yet to sho) up in our top ten, -ut )e/re p!ayin+ it e'ery )ay )e can. We had a seminar on it in Fo'em-er 6re&er to the =4eminars O We-casts? pa+e o& our )e-site &or an archi'e7. (& peop!e are interestedI there are a !ot o& thin+s on natura! +as )here the pu-!ic is unin&ormed. They/re not up on the physics or the chemistry o& )hat happens )hen you dri!! &or +as or )hen you -urn the +as, that )e thin" ma"es a di&&erence. @ut, i& you on!y !oo" at the top ten ho!din+, as opposed to !oo"in+ at our tota! port&o!io, no, you don/t see natura! +as in the ho!din+s. (t is in the port&o!io, -ut it/s dispersed amon+ a ha!& doHen di&&erent companies. T. Muhlenkamp What/s the head!ine in your opinion> What/s the dri'er> Dou ca!!ed natura! +as an ener+y +ame chan+er. R. Muhlenkamp (& you -uy ener+y throu+h crude oi!, you pay P100 a -arre!, or P3.50 per +a!!on &or +aso!ine. (& you -uy ener+y throu+h natura! +as, it/s the e0ui'a!ent o& P35 a -arre!, or a-out P1.50 per +a!!on in +aso!ine. (n this area, the peop!e )ho heat )ith natura! +as are payin+ ha!& o& )hat they )ou!d norma!!y pay2and most o& them don/t "no) it. 4o, i& you can cut your ener+y -i!! in ha!& -y s)itchin+ &rom crude to natura! +as, you can !itera!!y cut your ener+y -i!!. 4o )e ha'e seen a -i+ mo'e2natura! +as actua!!y +ot cheaper than coa! t)o years a+o in the sprin+ o& /12, )hich happens )hen natura! +as is around P3 per c& 61,000 cu-ic &eet7. We!!, )e thin" the neAt -i+ thin+ is &or o'er.the.road truc"ers to use natura! +asIit/s c!eaner and cheaper. Waste ana+ement 6W 7 is the !ar+est )aste hau!er in the country and it/s -een pushed &or years2)e!!, a!! this is on!y &i'e years o!d2to -urn natura! +as instead o& diese! &ue! in their truc"s, pure!y &or the c!ean air. We!! W has a!so &ound out it can cut their &ue! -i!! in ha!&. (n its annua! report, Waste ana+ement has said that +oin+ &or)ard they eApect their ne) truc"s, ;59 to <09 o& them, to -e natura! +as -urners instead o& diese! -urners. The port o& $am-ur+, %ermany, *ust contracted to ha'e a natura! +as.&ired +eneratin+ unit put on a -ar+e so that )hen cruise ships come into the port o& $am-ur+, they can, instead o& runnin+ the diese! en+ines )hi!e in port, run o&& the natura! +as on the -ar+e, pure!y -ecause the air is c!eaner &rom a natura! +as. &ired en+ine than a diese! en+ine. 4o this is +oin+ on out there2)e thin" it/s *ust no) hittin+ the cusp o& )hen you can +et the truc" en+ine and the &ue! at a &ue!in+ station, )hich )asn/t true a year a+o. @ut the dri'er is, you can cut your &ue! -i!! in ha!&. T. Muhlenkamp And that has imp!ications that run throu+hout the consumer, the manu&acturer, you name itI> R. Muhlenkamp E'erythin+ you see and -uy is ener+y.pac"a+ed throu+h some product. T. Muhlenkamp IMne )ay, or the other. R. Muhlenkamp Des. And it/s +i'en the C.4. a +reat ad'anta+e +oin+ &or)ard, )hich is -ein+ reco+niHed and &eared -y e'ery-ody &rom #ussia to (ranIto )hat ha'e you. (& the C.4. consumer has a choice o& cuttin+ his ener+y -i!! in ha!&, thin" o& )hat that does to the 4audis, thin" o& )hat that does to M1E5. And it/s rea!: it/s happenin+. T. Muhlenkamp


4o that/s re&!ected in our port&o!io, it *ust hasn/t )or"ed its )ay into our top ten 6ho!din+s7. R. Muhlenkamp Des. T. Muhlenkamp When you do !oo" at our top ten ho!din+s, are there companies that you thin" are particu!ar!y interestin+ or re&!ecti'e o& some o& the thin+s that you/'e -een seein+> R. Muhlenkamp We/'e mentioned a coup!e 6A!!iance 3ata 4ystems and 5e!+ene7. We thin" 4onic Automoti'e, an automoti'e retai!er, is )orth notin+. Dou may reca!! that )hen %enera! otors and 5hrys!er )ent -an"rupt, they c!osed a-out a third o& their dea!erships. We!!, i& you +et -ac" to the norma! !e'e! o& car sa!es2)hich )e/re +ettin+ c!ose to2it shou!d -e a !itt!e more pro&ita-!e &or the remainin+ dea!erships. 4o that/s )or"ed out pretty )e!! &or us T. Muhlenkamp Why don/t )e see i& any-ody has any 0uestions> We can open it up &or 0uestions at this point. Moderator 6(nstructions7 At this time, )e ha'e no 0uestions )aitin+. T. Muhlenkamp #on, is there anythin+ you/d !i"e to add> 3id )e co'er e'erythin+> R. Muhlenkamp 1retty muchI (t/s +oin+ to -e an interestin+ year in a!! "inds o& )ays. We thin" )e ha'e a hand!e on )hat/s +oin+ on. There/s a )ho!e !itany o& thin+s that cou!d +o )ron+, so )e/re tryin+ to monitor those. ( eApect to !earn a !itt!e -it a-out the pu-!ic/s mood neAt )ee" 6at the oney 4ho) in ,!orida7. @ut that/s most o& )hat )e/re seein+ at the present time. Moderator 1ardon the interruption. We ha'e a 0uestion &rom Wi!-ert ,er+uson. W. Ferguson 4ome peop!e are te!!in+ me that serious in&!ation )i!! ta"e p!ace, certain!y, some point in the &uture )hen the -an"s do -e+in to !end and peop!e -e+in to -orro). 3o you thin" that is rea!!y +oin+ to happen, and i& so, )hen mi+ht it -e> R. Muhlenkamp We!!, it/s certain!y a ris", @i!!, and my &ears are -ecause the ,ed )ants more in&!ation2and -ecause, as )e said !ast sprin+ )hen )e ta!"ed a-out the Big Squeeze, rea!!y the on!y )ay our +o'ernment can come c!ose to -a!ancin+ its -oo"sI (t can/t do it throu+h income taAes2peop!e )ou!d 0uit )or". @ut, i& they de-ase the sa'in+s, i& they in&!ate at 29 or 39 and on!y a!!o) you to earn 0.259 on your pass-oo" sa'in+s, then they/re ta"in+ 29 out o& your sa'in+s e'ery year. @ernan"e 6&ormer chair o& the ,edera! #eser'e7 su++ests they can ti+hten up on 15.minutes/ notice2and yes they can2-ut a!! the pressures are &or them to +o the other )ay. (n terms o& a &i'e. or ten.year ris",


that is the -i++est ris" out there. The on!y +ood ne)s is e'ery-ody "no)s a-out it, e'ery-ody/s )atchin+ it !i"e a ha)". We used to ta!" a-out the -ond 'i+i!antes, )e ha'en/t heard too much &rom them !ate!y. ( don/t thin" in&!ation has to happen, -ut the odds are &air!y hi+h that it )i!! happen, *ust -ecause the !east o-'ious )ay that the +o'ernment can ta"e our money is to de'a!ue the currency, the do!!ar, and ma"e a!! o& our sa'in+s do!!ars )orth !ess. ( don/t thin" it has to happen, -ut it/s more !i"e!y than not. As to )hen, ( don/t "no). A !ot o& peop!e assumed it )as comin+ soon. 4o &ar, it hasn/t -ecause companies ha'e -een 'ery re!uctant to -orro). ( mean, no-ody "no)s )hat the ru!es are three years do)n the road. We don/t "no) )hat the ru!es are &or taAes: )e don/t "no) )hat the ru!es are &or hea!thcare: )e don/t "no) )hat the ru!es are &or re+u!ations. 4o it/s -een pushed o&&. (n the meantime, the ,ed "eeps printin+ more money and -uyin+ more assets, and -ui!din+ up -i++er potentia! in&!ation. As to )hen it -e+ins, ( don/t "no). @ut it/s a-so!ute!y a serious ris" that )e/re "eepin+ an eye on. When that chan+es, (/!! !et you "no). Moderator Mnce a+ain, as a reminder, i& you/d !i"e to as" a 0uestion you can press star one on your te!ephone "eypad at any time. At this time )e ha'e no 0uestions )aitin+. R. Muhlenkamp (n that case, than" you a!!. When you do ha'e 0uestions, +i'e us a ca!!.


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