Benjamin Nahum manages the Neuberger Berman Intrinsic Value fund.
Photograph by Alfonso Duran
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For value managers, there’s nothing worse than a “value trap”—when a cheap stock continues to fall and thus stays cheap indefinitely. Many managers won’t invest unless they find a catalyst that can drive the stock higher.
But Benjamin Nahum, 63, is one of the few who doesn’t just find catalysts; he creates them himself.
The lead manager of the $1.2 billion
Neuberger Berman Intrinsic Value
fund (ticker: NINAX) will engage companies in proxy fights if they are poorly run. Alternatively, if companies are well run but need some help, he’ll provide private injections of capital for them to shore up their balance sheets. The strategy works. The fund’s 10-year annualized return of 14.1% beats Morningstar’s Small Blend fund category’s 12.2%, and the fund has beaten 97% of its category peers in the past five years. Its 1.37% expense ratio is slightly above the category’s 1.27% average, but its 5.75% load is waived at brokers such as Charles Schwab and Fidelity.
Having graduated from Brooklyn Law School, Nahum began working at a brokerage called MKI Securities in 1983, first as a compliance officer and then as a merger and spinoff analyst. Such corporate events are a primary catalyst for value investors, as the acquirer in a deal recognizes the hidden value in a company and is willing to pay more than its current stock price to buy it.
Nahum’s skills caught the eye of a value-focused investment firm called David J. Greene & Co. “I had a set of common interests with David J. Green, as they were a well known, catalyst-driven firm with a history of investing in companies that might break up or are attractive acquisition targets,” he says.
Nahum joined David J. Greene in 1991, and in 1997 started managing a private small-cap strategy for the firm’s clients called the DJG Small Cap Value fund. Neuberger Berman acquired David J. Greene in 2008 and converted Nahum’s private strategy into the mutual fund’s institutional share class (NINLX) in 2010. His team running the strategy has remained intact, and includes co-managers James McAree, who joined Greene in 2005, and Amit Solomon, who joined in 2002.
According to Neuberger’s data, since January 2009 through the present, 84 portfolio companies in the fund have been acquired with an average acquisition premium of 35%. But this catalyst is only one of several in Nahum’s arsenal; he has found other ways to escape value traps. “There are two sources of challenge with value traps,” he says. “The first is that the [company’s] board and the management don’t see, or they’re not reacting fast enough to, the changes that are happening in their industry. The other is that there’s too much debt. And even though the company has the right set of products and a vision, many times the balance sheet is working against them.”
Adding new equity to a company’s balance sheet can help it pay down debt with the capital it raises. In early 2021, Nahum and McAree helped secure secondary stock offerings for debt-laden data-management firm
Quantum
(QMCO) as well as
Babcock & Wilcox Enterprises
(BW), a renewable-power technology and boiler manufacturer.
“Quantum is a leading company in unstructured data-management software,” McAree says. Such data is difficult to categorize and store in the typical database or spreadsheet. “Video files, surveillance files, all kinds of [unstructured data files] are growing dramatically, and they need to be kept in storage,” Nahum says. “This capital will give Quantum more time to roll out their leading-edge data products.”
In Babcock & Wilcox’s case, because of the fund’s capital injection, it “now has the ability to help its traditional boiler company customers—utilities and power generators—to roll out the next generation of carbon-capture technology,” Nahum says. It “can become much greener now that it has far less debt and can roll out some of its new products over the course of the next two years.”
One thing that differentiates this fund from the typical small-value portfolio is its hefty tech stock weighting, at 34% as of Sept. 30. Nahum likes “interrupted growth” or “return-to-growth” plays in the sector. He says tech and growth stock investors in general have a “binary” view of the world. “In many cases, there’s no intermediate ground [for investors] in the small-cap growth company that’s now out of favor,” he says. “We try to identify out-of-favor ones that have strong balance sheets and entrepreneurial, innovative management teams, and see what is the possibility of the phoenix rising again.”
| Total Return | |||
|---|---|---|---|
| 1-Yr | 5-Yr | 10-Yr | |
| NINAX | 22.5% | 13.8% | 14.1% |
| Russell 2000 Value Index | 22.9 | 7.5 | 11.5 |
| Top 10 Holdings | |||
| Company / Ticker | % of Portfolio | ||
| Crown Holdings / CCK | 2.8% | ||
| Criteo / CRTO | 2.8 | ||
| Unisys / UIS | 2.2 | ||
| Avery Dennison / AVY | 2.2 | ||
| Resideo Technologies / REZI | 2.2 | ||
| International Game Technology / IGT | 2.2 | ||
| MaCom Technology Solutions Holdings / MTSI | 2.0 | ||
| Charles River Laboratories International / CRL | 2.0 | ||
| Ciena / CIEN | 1.9 | ||
| Xperi Holding / XPER | 1.8 | ||
| Total | 22.1% | ||
Note: Holdings as of September 30. Returns through December 20; five- and 10-year returns are annualized.
Sources: Bloomberg; Neuberger Berman
Nahum is particularly fond of complex tech companies with multiple business lines that the average investor might have trouble analyzing. One recent favorite is online ad company
Criteo
(CRTO). The stock got as high as $55 a share in 2017, but as regulators and major companies began to scrutinize advertisers’ use of third-party cookies—which Criteo and others used to track consumers—the stock began to fall. It reached a five-year low of $6.21 during the pandemic crisis in March 2020, not long after Google,
Apple
(AAPL), and Firefox said they would block third-party cookies on their browsers.
By the time Criteo stock had surged to $13 by the end of August 2020, Nahum had already nearly doubled his weighting in the company. “The question is, could they reinvent themselves if there were more-stringent regulations around privacy?” he says. “We decided that they had both the technology and the ability to navigate a world where cookies were going to be regulated away.”
Nahum saw that Criteo was developing a new line of ad business without cookies and with strong cash-flow growth. The company also had a lot of cash—$7 per share—on its balance sheet. Moreover, competitors with less cookie exposure, like
LiveRamp
(RAMP), are trading at several times Criteo’s valuation. The market has begun to catch on to this disparity: Criteo’s stock now trades around $38.
Of course, emerging from a value trap doesn’t always happen overnight. While Babcock & Wilcox is up almost 140% in 2021, Quantum is down 19%. But Nahum’s bets usually pay off eventually, even if sometimes they need a little nudge.
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