Morningstar Advisor - August/September 2011 - 56

Undiscovered Manager
Mitch Rubin
customers, creating steadier, more-predictable
earnings streams.
RiverPark Large Growth RPXFX
$16K
S&P 500 TR
13
10
7
Oct-10
Category
Large Growth
Morningstar Rating
-
Minimum Investment
$1,000
*Prospectus
Data as of June 30, 2011
growth stocks. More than 80% of Large
Growth's holdings land in the growth column
of the Morningstar Style Box. Even so, the
financial sector, typically a favorite area
for value hounds, accounts for 25% of assets,
far more than the 7% large-growth average
and 4% for the Russell 1000 Growth Index.
Rubin's holdings are driven by big-picture
trends, such as growing use of electronic
payments-explaining the fund's investments
in credit and debit card issuers Visa V,
MasterCard MA, and American Express AXP.
Little Room for Error
Meanwhile, technology also soaks up one
fourth of the Large Growth fund, though that's
about 5 percentage points less than the Russell
1000 Growth Index's weighting and the
large-growth norm. Rubin steers clear of highly
cyclical, commoditylike semiconductor
producers, preferring service and software
providers like Cognizant Technology Solutions
CTSH and Salesforce.com CRM. These firms
tend to sign long-term contracts with
56 Morningstar Advisor August/September 2011
Dec-10
Feb-11
Apr-11
Jun-11
Expense Ratio (%)
1.25*
6-Mo Anl Total Rtn (%)
4.89
Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-1 Jul-111
6-Mo Anl TR % `rank` Cat
64
Tech can pose a challenge to Rubin's valuation
discipline. He looks for stocks trading at
reasonable price multiples, but the sector has
historically traded at lofty valuations. Rubin
will invest where prices appear high based on
Wall Street expectations as long as they
look a lot cheaper when he plugs in his own
earnings estimates. For his numbers to
work, he has to rightly identify companies with
misunderstood growth prospects.
That's the case, Rubin says, with Apple, Large
Growth's third-largest holding. Rubin says that
even with a market cap second only to Exxon
Mobil XOM, Apple has room for rapid growth,
explaining that its share in most of the
end markets it serves remains small, especially
overseas. Investors continue to underestimate
the iPhone's potential in developing markets,
he argues, and he expects the iPad to dominate
tablet sales. Given these prospects, he says
Apple is a bargain.
Rubin will have to get calls like those
consistently right, as his portfolio's valuations
give him little margin of safety. Large Growth's
median holding trades at 19.4 times next
year's earnings estimates, well above 15.7 for
the Russell 1000 Growth Index and 16.7
for the large-growth average. Even where
Rubin correctly gauges companies' long-term
prospects, his reliance on relatively pricey
stocks will likely bite in volatile markets.
To be sure, Rubin's short manager tenure
says nothing about whether he can make such
volatility worthwhile. His success at Baron
inspires confidence, though. His first solo
assignment, Baron iOpportunity BIOPX,
the firm's more-cautious answer to a tech fund,
launched in March 2000. Despite the highly
inauspicious launch date, Rubin acquitted
himself well: Between March 2000 and
February 2006, the fund returned 0.4% per year,
nothing to write home about in absolute
terms but a lot better than the 5.3% slide
suffered by the typical large-growth fund and
far superior to the typical tech fund's 15.6%
plunge during the period. Rubin also led Baron's
first foray into large caps at Baron Fifth
Avenue Growth BFTHX in May 2004. Between
then and his March 2006 departure, Rubin
returned 15.2% annually, beating the largegrowth
average by 3.4%.
Tiny-Asset-Base Dilemma
Despite those numbers, Rubin's young fund has
evaded notice, with a minuscule $3.2 million
in assets. Some advisors see this as an
advantage. " Sometimes there's a gap between
investing expertise and marketing expertise, "
says Jim Lebenthal of Alexander & James,
a New York-based wealth-management firm.
" It's a good situation to find yourself in. "
Lebenthal likes Rubin's willingness to go off
the beaten path. " With Mitch and his team,
you get new, innovative ideas, " he says.
The fund's diminutive size presents a chickenand-egg
dilemma, though.
Joel Isaacson, founder of planning firm
Joel Isaacson & Co., has known Schaja and
Rubin since their days at Baron, and he's
confident in their abilities. But Issaacson says
that he can't establish a meaningful position
for his clients-he says he has about $4 billion
under management-without swamping the
fund with money. So, Isaacson wants RiverPark
to get more traction before fully diving in. (For
now, he's invested a slice of his employee
profit-sharing plan in RiverPark funds.)
Lebenthal shares this concern. He's happy to be
an early investor but says that he's been
putting client dollars to work slowly.
Schaja and Rubin acknowledge the difficulty of
attracting investors to their shop. But the pair
appears passionate and happy to be rooted in
their new soil. It just may take time to show
that their firm's funds can bear fruit. K
Christopher Davis is a senior mutual fund analyst
with Morningstar.
http://www.Salesforce.com
Morningstar Advisor - August/September 2011

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