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Mutual Funds

Clipper Changes Course

Directors mutiny and hire new managers.

A fund's board of directors seldom has the gumption to defy the fund's sponsor. But in a rare display of independence, that's just what the overseers of Clipper fund did when they agreed to hire Davis Selected Advisors as Clipper's new manager.

The decision to appoint the team of Christopher Davis and Kenneth Feinberg was surprising, to say the least. After Clipper's veteran manager, James Gipson, and two colleagues announced that they would leave at the end of 2005, Old Mutual Asset Management, which owned Gipson's firm, said it would name another one of its subsidiaries to run Clipper. Although Old Mutual's choice favors undervalued stocks, Clipper's directors wanted a manager whose approach to bargain hunting -- like that of Davis -- was closer to Gipson's.

Davis, 40, and Feinberg, 48, are no strangers to Kiplinger's readers. They manage no-load Selected American Shares, which, like Clipper, is in the Kiplinger 25. Over the past five years to December 1, Selected gained an annualized 5%, compared with 7% for Clipper and 1% for Standard Poor's 500-stock index.

Davis and Feinberg will continue to run Clipper with a concentrated approach. The fund (symbol CFIMX; 800-776-5033) holds just 15 to 20 stocks, compared with about 70 for Selected. Davis says he and Feinberg follow the same "eclectic and contrarian philosophy" practiced by Gipson. But whereas Gipson often let cash build up to as much as 40% of assets when he couldn't find cheap stocks, Davis and Feinberg will keep cash to a minimum.

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It's hard to say how the new Clipper will perform compared with the old Clipper or with Selected. But Clipper clients are sure to benefit in one respect. The deal with the Davis firm, which requires the okay of Clipper's shareholders, will result in lower fees. Clipper's fees are expected to drop from 1.12% a year to 0.70% to 0.80%.