Eugene Profit made a name for himself as a defensive back in the National Football League. Now, as chief investment officer at Profit Investment Management, Silver Springs, Md., he's playing in a different arena -- institutional markets.
The $6.2 million Profit Value Fund, which he manages, has picked up its first two institutional clients: the $27.5 billion Los Angeles County Employees Retirement Association, Pasadena, Calif., and the $860 million Domestic Emerging Managers-Minority Equity Trust, Baltimore, Md. Each allocated $10 million to the 3-year-old fund, which is the top ranked large-cap value fund for the three-year period ended April 30, according to Lipper Inc., Summit, NJ.
The fund posted a 28.8% annual total return for the three-year period ended April 30. It returned 18.8% for the 12-month period; year to date through April 30, it is up 6.4%, according to Lipper.
By contrast, through the end of April, the Lipper Large-Cap Value Index was down 0.1%.
Mr. Profit also is part of a new breed of value managers that practices relative value investing, buying growth-type stocks that are value-priced.
A Yale grad in the NFL
As a five-year NFL veteran, Mr. Profit may be in a league of his own in terms of gridiron stars who've become CIOs. Then again, it's no more surprising than being a Yale graduate with an economics degree playing in the NFL.
Mr. Profit was named an All-American at Yale and was drafted by the New England Patriots in 1986. Mr. Profit played cornerback for the Patriots for three seasons, from 1986-1988, followed by two seasons with the Washington Redskins, before an injury forced him to retire in 1990.
The two professions may seem as different as night and day, but Mr. Profit said there are similarities. As a cornerback, Mr. Profit said, performance is under a microscope.
"Each week, the whole world knows whether I did well or not," he said. "Money management is sort of the same game. At the end of the month, people look at our performance and evaluate whether we did well or not."
Whether managing money or covering a receiver, Mr. Profit believes it comes down to "getting in the right place, going full speed, and making the right decisions."
His former coach at Yale, Carm Cozza, isn't surprised at Mr. Profit's career in money management, based on his attitude as a football player. "You could see him growing in the program and improving every minute, every day," Mr. Cozza, now retired. "He worked hard at it."
Before founding Profit Investment Management in November 1996, Mr. Profit worked as a financial consultant with Legg Mason Inc., Baltimore. There, he developed his value style by watching value manager Bill Miller and the securities he selected for his successful Value Trust fund.
In choosing securities for the Profit Value Fund, Mr. Profit said he does not adhere to traditional price-to-earnings and price-to-book ratios used by value managers. "That's where you have a break between so-called new value managers and traditional value managers," he said. While traditional value managers generally look for p/e ratios in the range of 17-20 or lower, Mr. Profit believes that strategy limits a portfolio to too narrow a segment of the market.
"If a security is at a valuation that is lower than it has been historically and we see a catalyst that will bring it back up to its normal position in the marketplace, then we're not opposed to stepping into that position," Mr. Profit said.
About 30% of the portfolio is in technology stocks, according to Morningstar, including the two largest holdings, EMC Corp. and America Online Inc., both of which he bought in summer 1998 at between $12 and $13 per share. From a valuation standpoint, "they were the most attractive names in the marketplace at the time they were purchased," said Mr. Profit.
They're still in the portfolio because he does not operate under any rigid buy-and-sell rules, and because he's not opposed to letting the winners run. The portfolio's annual turnover ratio is 23%.
While most would not consider AOL a value stock, Mr. Profit said it's difficult to compare an Internet company like AOL to an industrial company like Exxon Corp., also a part of the portfolio.
Because AOL doesn't have a large infrastructure cost, he said it's going to have a higher price-to-book value than a bricks-and-mortar industrial company. "We compare tech stocks to tech stocks" when looking for values.