Fund name: Manning & Napier Dividend Focus (MNDFX)

Objective: The fund seeks returns which are competitive with the broad market, while at the same time providing some capital protection during "sustained" bear markets. Stocks are selected from a broad universe of mid- to large-cap stocks – including international and emerging markets -- based on high free cash flow, high dividend yields, and low likelihood of, well, bankruptcy. This is a quant fund which rebalances only once each year, although the managers reserve the right to add or drop individual holdings at any time.

Manager: Managed by a team of eight. They actually mean "the team does it." Manning & Napier is so committed to the concept that they don’t even have a CEO; that’s handled by another team, the Executive Group. In any case, the Gang of Eight is the same crew that manages all their other funds.

Management’s Stake in the Fund: Those stats are not yet available for this fund. Taken as a whole, half of the fund’s managers have between $100,000 and $1,000,000 invested in other Manning & Napier funds while half, often junior folks, have under $100,000.

Opening date: November 7, 2008

Minimum investment: $2,000, which is waived for accounts established with an automatic investment plan (AIP). The fund is, as yet, available in only the 14 largest states: California, Colorado, Florida, Georgia, Illinois, Indiana, Massachusetts, North Carolina, New York, Ohio, Pennsylvania, Texas, and Virginia. In the past, M&N has been willing to register in new states when investors in those states have contacted them and sought inclusion.

Expense ratio: 0.60% after waivers on $2 million in assets.

Comments: Manning & Napier launched at the outset of "the lost decade" of the 1970s when the stock market failed to beat either inflation or the returns on cash. The "strategies and disciplines" they designed to survive that tough market allowed them to flourish in the lost decade of the 2000s: every M&N fund with a ten-year record has significant, sustained positive returns across the decade. Results like that led Morningstar, not a group enamored with small fund firms, to name Manning & Napier as a finalist for the title, Fund Manager of the Decade. In announcing the designation, Karen Dolan of Morningstar wrote:

With Dividend Focus, they’re bringing those strategies to their first low turnover, index-like product. The adviser describes Dividend Focus as appropriate for investors seeking "a portfolio of high-quality, high dividend-yielding securities’ and " a fundamentals-based alternative to indexing, focused on providing exposure to companies with meaningful growth potential due to high free cash flow yields." This will be their lowest-cost, highest-yield and (likely) lowest-turnover equity fund.

The managers select stocks based on three criteria:

• "High free cash flow (i.e., cash generated by a company that is available to equity holders). Minimum free cash flow yield must exceed the yield of high quality corporate bonds.



• Dividend yield equal to or exceeding the dividend yield of the broad equity market.



• Not having a high probability of experiencing financial distress. This estimate is based on a credit scoring model that incorporates measures of corporate health such as liquidity, profitability, leverage, and solvency to assess the likelihood of a bankruptcy in the next one to two years."

The portfolio currently holds 135 stocks, about a third international. In the first year of operation, the portfolio had no sector weight anywhere near index or category average.

While a focus on high-quality, dividend-paying stocks offered some small protection during the 2008 meltdown, the rebounding market in 2009 did not reward such stocks:

In the long run, however, the evidence is unequivocal: a focus on high-quality, dividend-paying stocks are the closest thing the market offers to a free lunch. That is, you earn slightly higher-than-market returns with slightly lower-than-market risk. As I’ve noted elsewhere, dividends help in three ways:

• They’ve always been an important contributor to a fund’s total returns (Eaton Vance and Standard & Poor’s separately calculated dividend’s long-term contribution at 33-50% of total returns);



• The dividends provide an ongoing source of cash for reinvestment, especially during downturns when investors might otherwise be reluctant to add to their positions; and,



• Dividends are often a useful signal of the underlying health of the company, and that helps investors decrease the prospect of having a position blow up.

Some cynics also observe that dividends, by taking money out of the hands of corporate executives and placing in investors’ hands, decreases the executives’ ability to engage in destructive empire-building acquisitions.