The current financial crisis started small and ballooned into something big and chilling. We don’t know when the crisis will end, but we think we know how it will end. As we see it, when the crisis is in the process of being resolved, there will be six telltale signs. The signs pertain to the financial-services sector’s size, profitability, and rate of deleveraging; tangible prices being set for mortgage securities; lending loosening up; new regulations; and a stabilized housing market.

Although bubbles are notorious for producing a lot of investment carnage, they aren’t all bad. Bubbles can enrich investors (if they exit at an opportune time) and help fund bold, new ideas that revitalize markets and economies.

We think bubbles are inevitable, in light of the imperfections of the governments, central banks, investors, and markets that enable them. In our judgment, the next bubble might be in Chinese technology, real estate, or stocks; alternative energy; health care; or developing nations’ stock markets.

Our position in brief

The merits of investing in international stocks -- to maximize performance, to gain the risk-reducing benefits of diversification, to expand one’s investment horizon -- are widely accepted today. As we see it, the same principles of sound investing that apply to U.S. stocks hold true for international stocks as well, with a few twists.

Over the years we have acquired definite convictions about how to invest successfully in international growth stocks. We discuss six of our key convictions here, including the following: focus on large stocks and the earnings prospects of their issuers; the impact of currency risk on returns has been less significant over time than is often supposed; be aware of how differing accounting standards globally can affect the numbers that companies report; tap the knowledge of select experts in industries; and calibrate your quantitative model to address the unique characteristics and biases of individual stock markets.

In 2008, for the first time, the asset-capacity limits of Turner Investment Partners’ 23 primary stock portfolios were calculated in two ways: individually and collectively.

For the new collective asset limits, the portfolios are classified according to 11 groupings, based on capitalization segment and investment style (for example, large-cap growth, quantitative mid-cap, small-cap core/value, international/global). When the asset limits for a particular group of portfolios are reached, all portfolios in that group will be closed to new investors. In our judgment, the collective limits needed to be added in light of the overlap in holdings in the portfolio groups.

As a result, a portfolio is now subject to closing when either of two conditions are met: when it reaches its own individual asset limits or if the entire group of portfolios of which it is a part hits that particular group’s asset limits. Previously asset limits were established only for each individual portfolio, and portfolios were closed individually.

With the exceptions of three portfolios already closed, most of our portfolios remain able to comfortably absorb additional assets for years to come without impairing their performance; most of our portfolios -- and groups of portfolios -- are well within their asset limits.

Asset Capacity Study for 2008

We think corporate America is increasingly going green for four primary reasons. One, companies recognize that they have environmental responsibilities. Two, the green movement can help reduce the conflicts between capitalism and environmentalism. Three, the movement can help companies enhance their competitiveness. Four, it can help companies save money.

As we see it, prime risks to the movement are the public’s impatience with initial corporate environmental efforts that have been imperfect and the danger that companies may substitute spin for action. In all, we think the movement is likely to inspire efforts on the massive global scale needed to improve environmental quality.

130/30 investing, which uses leverage to seek above-average extra return, should gain institutional assets rapidly over the next five years. However, institutions must not lose sight of how the short-selling capability of 130/30 portfolios presents special opportunities and risks that can affect the performance of those portfolios for better or worse.

We have definite beliefs about 130/30 investing that were instrumental in the development of our own 130/30 portfolios. We discuss eight of our core beliefs here, including the following: a 130/30 portfolio is only as good as its investment process; the flexibility of leverage can backfire if it isn’t accompanied by good stock selection and effective risk-management controls; asset-capacity limits can help enhance results; and prime brokers should be carefully chosen, since they’re critical to successful short selling.

In managing money, less can be more. Numerous investment studies
have documented the phenomenon known as the size effect --
the inverse relationship between the size of assets under management
and the ability to outperform. Once assets reach a certain mass,
investment performance tends to worsen. Small-cap stock portfolios
are especially vulnerable to the size effect. To improve our own
chances of delivering superior investment performance, we early
on established asset limits for our institutional portfolios and mutual funds.

It has been a common practice in the investment community to divide the global equity markets, as well as regional and country ones, into the growth and value styles. Growth companies typically increase their earnings at sustainable rates that are higher relative to their peers and their stocks typically trade at valuations higher than the market average. Value companies are typically those whose stocks trade at valuations that are discounted relative to the market averages and their earnings growth rates are typically below average relative to their peers.

Generally the asset-capacity limits of Turner Investment Partners’ stock
portfolios for 2007 are little changed from the previous year. Although
stock-market liquidity increased about 15% in 2006, its effect on the
asset-capacity limits for our growth-stock portfolios was offset by a
comparable percentage reduction in the number of holdings in those portfolios.
The net result was a slight decline in capacity of the growth portfolios.
In contrast, the capacity of our core and value portfolios increased slightly
from 2006.

Also, for the first time we have calculated capacity limits for our international
and global portfolios, using trading-volume data from stock markets
around the world, as well as for our quantitative portfolios.

Heightened demand for ethanol as a gasoline additive is fueling increased production of corn, America’s #1 crop, and a resurgence of America’s agricultural economy. We think that over the next 10 years corn production could increase by almost 40% and ethanol production could triple. The ethanol boom should benefit producers of agricultural equipment, machinery, seeds, and fertilizers, as well as ethanol processors, transportation companies, and trading exchanges, in our judgment. The boom could also foster a rise in food costs, slightly dampening the profits of food, beverage, and restaurant companies.

Although the technology sector may not be all that it used to be -- it’s maturing and increasingly cyclical in nature -- it still offers some compelling investment opportunities. Over the years we think we have accumulated some useful lessons about investing in the sector and discuss 12 of them here. Among the lessons we think are noteworthy: sell a tech stock at the first sign of earnings disappointment; buy the leaders in their industries, particularly in the early stages of product life cycles; don’t equate valuations with return potential in tech stocks; evaluate tech companies on their ability to innovate and the quality of their management and technical talent; and let your winners run.

Our position in brief

Robust demand, especially from China and India, and tight supplies, the result of years of under-investment, have produced the greatest boom in commodities in the past 50 years. Commodity prices in many cases have risen more than threefold recently. We think most commodity prices may have peaked but could remain above their average of the past 10 years, since the supply/demand equation is unlikely to change much soon. However, a global recession could quickly decimate commodity prices.

The world is getting flatter, which is tending to accelerate the pace of globalization. Stock investing is getting more global, too, and the correlation between the world’s stock markets and market sectors is rising. In a study of growth and value stocks in the MSCI World indexes, we found that growth stocks -- and some value stocks -- tend to correlate more highly to their corresponding global sectors. Most value stocks, however, tend to move in synch with their home stock markets.

(First Quarter 2006) Investment research has confirmed an inverse relationship between the size of assets under management and investment performance -- that is to say, the larger a stock portfolio's asset base, the more deleterious the effect on performance.

At Turner Investment Partners, we have developed a methodology to measure the maximum asset capacity of our stock portfolios (the largest amount of assets that they can accept and still efficiently execute their investment strategies and retain their potential to outperform). In this study we have investigated and updated the existing asset-capacity limits for our institutional stock portfolios/mutual funds that have specific market-capitalization niches.

Our position in brief

The oldest baby boomers are now turning 60 years old, and we anticipate that companies will scramble to develop and adapt their products and services to serve an aging baby-boomer generation, just as they have in the past. They will do so because the 76 million boomers have a marketing clout that’s too big to ignore; by 2010 their annual spending is expected to be $1 trillion more than that of people age 18-34. As we see it, boomers should have the greatest financial impact on the autos/transportation, consumer, financial-services, health-care, and technology sectors. By way of illustration, we offer a sampling of products and services in those sectors that are being tweaked to accommodate boomers’ evolving, diverse wants and needs.

(First Quarter 2005) Investment research has confirmed an inverse relationship between the size of assets under management and investment performance --that is to say, the larger a stock portfolio's asset base, the more deleterious the effect on performance.

At Turner Investment Partners, we have designed a system to measure the maximum asset capacity of our stock portfolios (the largest amount of assets that they can accept and still efficiently execute their investment strategies and retain their potential to outperform). In this study we have investigated and updated the existing assetcapacity limits for our institutional stock portfolios/mutual funds that have specific market capitalization niches.

Our position in brief

The journey to become a good investor begins with a desire for knowledge.  And there’s no better way to gain knowledge than by reading books.  So we asked our portfolio managers/security analysts, traders, and marketing and client-service managers (who are ardent readers) to select their choices of the best books on stock investing.

The 15 books they selected for your consideration: The Essays of Warren Buffett; Extraordinary Popular Delusions and the Madness of Crowds; Financial Statement Analysis; Good to Great; The Intelligent Investor; Investment Biker; Managing Your Investment Manager; One Up On Wall Street; Searching for Alpha; Stocks for the Long Run; The Tao Jones Averages; Technical Analysis Explained; The Templeton Touch; Trading in the Zone; and When Genius Failed.

Our position in brief

To own stocks that can generate four- or five-digit percentage gains is a primary motivation in growth investing. But those stocks are hard to find, mainly because it’s hard for companies to sustain the kind of above-average earnings growth that leads to above-average total returns. In this paper, we identify seven characteristics that our growth-investing team believes typify companies that ultimately make great stockmarket investments. As we see it, great growth companies have these characteristics: they do business in fast-growing markets, have leading market shares, are innovative and well managed, make savvy acquisitions, generate aboveaverage free cash flow, and rank highly in certain financial metrics.

We believe identifying industry trends with staying power may be a key to out-performance in stock investing in the remainder of this decade. With that premise as a guidepost, we asked the 17 members of our growth-investing team to identify what they believe are 10 trends and companies in the 10 market sectors they cover.