The manager of Excelsior Value & Restructuring hunts for bargain companies in the throes of change. By Steven Goldberg, Contributing Columnist January 31, 2006 Dave Williams is a long-distance runner at heart. In his younger days, he ran eight marathons, including the New York Marathon five times. Now, at age 63 (and four years after bypass surgery), the manager of the successful Excelsior Value Restructuring fund has cut back. But the marathons, and the training for them, left their mark on Williams the investor. "You have to take a long-term approach when preparing for a marathon," he says. "The same is true of investing." Long term definitely describes Williams's approach to picking stocks for his $5.3-billion fund. He looks for undervalued companies that are restructuring or are in industries that are consolidating. When he finds those stocks, he holds them -- and holds them and holds them. Broad definition To Williams, restructuring means almost anything that a company does to revive its fortunes -- for example, bringing in new managers, cutting costs or introducing new products. "I look for companies that are having problems over the short-to-intermediate term, but that I think will recover and prosper," says Williams. "I'm not interested in bad businesses, much less bankruptcies." But Williams doesn't fear debt. He reasons that most professional investors prefer to invest in high-quality, low-debt companies. As a result, he says, stocks of many high-debt firms tend to be inefficiently priced, and that leads to bargains. "I'll buy stocks with a lot of debt," says Williams, "if I think the company is earning enough to pay the debt and survive." This penchant for debt-laden companies can cause heartburn during periods of economic weakness. For example, during the 2000-02 bear market, his fund lost 38% -- far more than most value funds. Advertisement But the fund's long-term record is outstanding. Over the past ten years to December 1, Excelsior (symbol UMBIX; 800-446-1012) returned about 15% annualized -- not far behind the 15.6% annualized gain of Legg Mason Value, managed by Bill Miller, who is best known for beating Standard Poor's 500-stock index for 14 straight years. Williams has been consistent, too. Since he launched his fund, at the end of 1992, it has outpaced the SP 500 11 times in 13 years. Besides their stellar records, Williams and Miller have something else in common: They hold on to cheap stocks as they morph into growth stocks, an approach that confounds the fund raters. Although Morningstar and Standard Poor's both consider Excelsior to be a large-company value fund, a Morningstar snapshot of its holdings at the end of 2004 slotted the fund in the "blend" category -- a cross between growth and value. Among Williams's positions that few would label bargains today are XM Satellite Radio (XMSR), Harman International Industries (HAR) and Baxter Labs (BAX). Energy bull Williams has 20% of assets in energy stocks and remains enamored of the sector because of ongoing consolidation. His biggest holdings recently included Burlington Resources (BR) (subject of a takeover bid announced in mid December), Consol Energy (CNX) and Petroleo Brasileiro (PBR). Williams has 31 years of investing experience (Timothy Evnin, who signed on in 2002, and John McDermott, who began in 2005, serve as co-managers). Expenses, at 1.07% per year, are below average, and the fund has a low minimum investment of $500, making it an especially fine choice for beginning investors.