ETFs (exchange traded funds) have become an important part of the investing landscape and represent competition, like index funds, Thomas O'Halloran, lead portfolio manager at Lord Abbett Developing Growth Fund, told CNBC on Tuesday.
"We have to be very aware of what they own and where the flows are going, as far as ETFs are concerned," O'Halloran said.
O'Halloran's strategy going into 2011 is to put together the very best companies that produce great returns over time.
"We look for a sound business model, capable management, healthy industry conditions and a competitive advantage," O'Halloran said.
"These companies will trade at a premium, so it becomes very important for us to stay on top of their fundamentals—make sure they continue to stay healthy," he said.
For example, the apparel company Lululemon is "an emerging consumer icon. Things have never been better. They are growing 50 percent a year on the top line, more on the bottom line," O'Halloran said, adding, "they only got 150 stores and they probably have room for 600 or more."
On the other hand, O'Halloran is careful about trimming or cutting positions where he sees a weakening of the fundamentals, overvaluation or excessive stock-out performance.
"Although we had a lot of winners—OpenTable , ChipotleMexican Grill and Netflix —we did a very good job at protecting the downside," he said.
"When we saw stocks get into trouble technically, we searched for a fundamental reason, usually we found one, and contained our loses," O'Halloran said.
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