Betting on Asia and Europe
Not many fund families can claim to practice an investment process that's been passed down, over decades, through lines of successful portfolio managers, but Mutual Series is one of the few. So on the rare occasion that the family launches a new fund -- as it did recently with its Mutual International fund -- you know that management's seasoned eyes must be spotting once-in-a-generation opportunities.
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In practice, the new fund (which does not yet have a ticker symbol) will act like two separate funds that have been glued together: One will invest in Europe and the other in Asia. Philippe Brugere-Trelat, who has been steeped in the Mutual Series way for the past 25 years, will manage the European side. Andrew Sleeman, a relative newcomer to Mutual Series, with two years under his belt, will manage the Asian side. Managers have the leeway to invest in emerging markets, but say the fund will maintain a heavy bent toward developed economies.
The fund seeks to remain true to the investment approach that's served Mutual Series so well over the years. Analysts and managers search for companies that are cheap relative to earnings, cash flow or the value of a company's physical assets. "We look for companies that are cheap for the wrong reasons," says Brugere-Trelat. Managers build portfolios company by company, allowing sector and geographic diversification to percolate through their individual picks. They hold a stock for three years, on average.
Mutual Series also practices merger arbitrage, buying shares of companies that are the targets of previously announced takeovers. And it invests in distressed companies. Brugere-Trelat says the new fund will employ both strategies.
It's a testament to the family's deeply contrarian values that Mutual Series is launching a new fund now. International is only the eighth fund launch in the firm's 60-year history. Given that the creation of a fund, including obtaining the necessary government approvals, is a time-consuming process, you can infer that management smelled opportunity when markets were still falling. To put it another way, the folks at Mutual Series got greedy when others were fearful.
In hindsight, says Brugere-Trelat, it would have been even better to launch the new fund in March, when stock-market indexes bottomed. But he's happy to be deploying fresh cash into a market that he says is not only still remarkably cheap, but in which "some of the uncertainty is gone." Adds Brugere-Trelat: "Stocks will not keep going up on a straight path, but barring an unforeseen catastrophe, I would be surprised if we retest the March lows."
Why the Europe and Asia focus? Brugere-Trelat, who also manages Mutual European (symbol TEMIX), points to mouthwateringly low stock valuations in Europe. In early May, he notes, Standard and Poor's 500-stock index traded for 16 times estimated 2009 earnings, while Europe's Stoxx 600 index traded for less than 13 times estimated earnings. As for his part of the portfolio, Sleeman points to low levels of debt, both of corporations and of households, in Asia.
Although a few other Mutual Series funds hold small stakes in Asian stocks, the firm doesn't have a presence in the area. Some of the firm's 18 analysts are based in the U.S. and some in Europe, but none are based in Asia yet.
Brugere-Trelat says that you can expect the European side of the fund to invest in parallel with his Mutual European fund, which has gained 3.5% annualized since he took the reins in late 2004, compared with the average European stock fund's 1.9% annualized loss over the same period. Makes you wonder if the Europe focus was merely tacked on to the new fund to buffer any stumbles it may make in Asia.
Mutual Series has proved naysayers wrong in the past. Many devoted investors exited the firm's funds in 1998 with the departure of legendary manager and chief executive Michael Price, who was viewed as singularly responsible for the funds' successes over the previous decade. It didn't help that at the time of Price's exit, two years after the company's sale to Franklin Templeton, growth strategies were leaving value strategies in the dust, and many Mutual Series funds were barely returning peanuts.
But the funds bounced back just fine. All six of the Mutual Series funds with ten-year performance histories have landed in the top 20% of their respective categories over the past ten years, and four rank in the top 10%.
Investing in Mutual International requires a leap of faith that the firm in general, and Sleeman in particular, can translate the Mutual Series tradition to a part of the world in which it has little experience or track record. But investors who recognize that Mutual's contrarian bent will likely cause its funds to lag in headier years -- and who can access shares through an adviser to avoid the sales charge -- will find plenty to like in Mutual's existing offerings.