Fund Watch


Trusted Managers, New Funds

Nellie S. Huang

These funds are run by managers who went out on their own after achieving fine records elsewhere.



During a 12-year stint at the helm of fbr focus, Chuck Akre compiled a distinguished record as a stock picker. Between 1997 and 2009, his fund posted an annualized return of 13%, better than 90% of its peers. But three years ago, Akre walked away from FBR to launch his own fund, Akre Focus. Though his fund has a new name, Akre says, little else has changed. He follows the same investing mandate he used at FBR: to find well-managed companies of any size with high and sustainable profitability.

SEE ALSO: Our Guide to Mutual Funds

So far, things have worked out well for Akre and his shareholders. Since Akre Focus’s inception in August 2009, the fund, a member of the Kiplinger 25, has gained 15.0% annualized. The fund outpaced Standard & Poor’s 500-stock index in 2010 by four percentage points; in 2011, it beat the index by almost nine points.

The success of Akre Focus led us to search for other relatively new funds with proven managers behind them. We found several, including DoubleLine Total Return, run by Jeffrey Gundlach and Philip Barach, who broke away from TCW to found DoubleLine in 2010. But not all of the new funds were worth crowing about. Some of the managers, for instance, had great records at their old shops but spotty returns at their new ones—or vice versa. In the end, we found six no-load funds that deserve a closer look. All are run by well-known managers who had stellar records at bigger shops and left to launch their own funds, and all are still going strong.

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Seeking Fast Growth

Robert Gardiner and Blake Walker cut their teeth at Wasatch, a firm that specializes in fast-growing small and midsize companies. In 2011, they left to form Grandeur Peak, which, like Wasatch, is based in Salt Lake City.

But a couple of things haven’t changed. The view from their new digs is the same: Both the Wasatch and Grandeur Peak offices look out on the Wasatch Mountain range. The investing strategy is the same, too. “We try to execute the core Wasatch philosophy with precision,” says Walker.

Until recently, the pair ran Wasatch Global Opportunities, a fund that invests in fast-growing companies of all sizes headquartered anywhere in the world. In 2009 and 2010, the fund’s first two years of existence, it gained 61% and 26%, respectively, outpacing 96% of its global fund peers the first year and 95% the second. Before that, Gardiner managed Wasatch Micro Cap Fund, racking up an annualized return of 25% during his tenure, from June 1995 through December 2006.

Last October, Gardiner and Walker launched Grandeur Peak Global Opportunities (symbol GPGOX), which invests all over the world, and Grandeur Peak International Opportunities (GPIOX), which buys only foreign stocks. Like their previous Wasatch funds, the new ones focus on growth stocks. But instead of combing through companies of all sizes, the managers home in on small companies, with market capitalizations from $50 million to $1 billion. “It’s easy to set up a large-cap value fund and buy Samsung,” says Walker. “It’s harder to knock on doors and uncover these little pebbles.”

He and Gardiner look for companies with little debt and hefty profit margins. They carefully analyze those that look most promising, a process that includes making their own earnings forecasts. They visit the firms with the best prospects—those with estimated long-term profit growth of at least 15% a year. In Grandeur’s first six months, the managers traveled to China, Indonesia, South Korea, Japan, Malaysia, Brazil, South Africa, India, France, Germany and the U.K. “I’m trying to stay married,” says Walker, “but we’re on the road constantly.”

In the end, Walker and Gardiner seek what many other growth-stock managers want: companies with a sustainable competitive edge, a good management team and a strong business model. “And headroom,” adds Walker. “We want the market it operates in to be big enough for these guys to grow a long time.” So far, so good, despite wobbly foreign markets of late. From their inception, the Global and International funds have gained 11.0% and 8.0%, respectively, beating the 7.8% return of the MSCI World index. (All returns are through June 29.)

Global Bargain Hunter

The world’s stock markets have never been more attractive, says David Winters, manager of Wintergreen Investor (WGRNX). “Today, I feel like a kid in a candy store with $100 in my pocket.”

That’s because stocks are depressed all over the world, and Winters loves a good bargain. Not surprising for someone who got his training at Mutual Series under legendary value managers Max Heine and Michael Price (Franklin Templeton bought Mutual Series in 1996). Winters spent almost 30 years at Mutual Series, starting as an analyst and rising to CEO, president and chief investment officer.

But in 2005, Winters left to start his own shop and launch the Wintergreen fund. Over the past five years, the fund returned an annualized 1.5%. That may sound slim, but it beats the MSCI World index by an average of 3.6 percentage points per year.

Wintergreen can invest in companies large or small. But Winters will buy only if a company meets his definition of an investing trifecta: The company must have good or improving economics, be run by a management team that’s working for all shareholders, and trade at a value price. A bargain, in his mind, is a company that’s trading for less than what he thinks it’s worth. Winters uses several methods to arrive at that number, including the “arm’s length test”—what a knowledgeable buyer would pay to buy a company. He keeps tabs on takeovers and mergers to get a sense of the worth of companies in various industries.

Winters has free rein to invest wherever he finds opportunity—in the U.S. and overseas, including emerging markets, and in any asset class, including stocks, corporate bonds and government debt. These days, he’s been eyeing stocks, especially those that trade in Switzerland and the U.K. (“no euro zone” issues, he says) and in Hong Kong and Malaysia. One stock he has held for a long time is the conglomerate Genting Malaysia Berhad. When Winters visited Malaysia six years ago, Genting was a small domestic company with a great balance sheet, able executives and international aspirations. Today it is part of a gambling duopoly in Singapore (Genting and Las Vegas Sands are the only companies with gaming licenses there), and it has a casino in the Philippines, among other international businesses. “We buy companies that we think will do well in the future without paying for that future growth,” says Winters.

Winters typically turns over 11% to 15% of his portfolio annually, suggesting that he holds on to stocks for seven to nine years, on average. “When you trade, you’re making another decision,” says Winters. “We would rather make fewer and better decisions.” Yet Winters makes sure to have plenty of cash on hand (about 14% at last word) so he can be “in a position to accumulate” when the market gets bumpy.

In Sync from a Distance

More than 1,200 miles separate Larry Pitkowsky and Keith Trauner. Pitkowsky lives in New Jersey; Trauner, in Florida. But after working together at Fairholme Fund for close to a decade—at times as co-managers—Trauner says they “don’t have to say a lot” to understand each other.

The proof is in GoodHaven Fund (GOODX), which the pair launched in April 2011. Over the past year, the concentrated portfolio of bargain-priced stocks (the fund holds just 19 companies) returned 6.8%. The S&P 500, meanwhile, returned 5.5%.

Much like Fairholme, GoodHaven can invest in almost anything: stocks in companies of any size the world over and bonds of any type, from U.S. Treasuries to junk bonds and from mortgage securities to bank loans.

The central theme that ties the disparate asset classes together is value. Pitkowsky and Trauner, each of whom has $1 million invested in the fund, find ideas by scanning lists of beaten-down stocks and companies poised for a turnaround. They look at what other sharp value managers are buying, too. The goal: to find good companies trading for less than what they think the firms are worth.

The fund may own both a company’s stock and its bonds. “If we like the stock, we ought to love the bond,” says Trauner. Take Walter Investment Management. The little-known company specializes in servicing mortgages of troubled borrowers—a skill set in high demand these days. Walter does “a good job of keeping people in their homes and paying their mortgages,” says Trauner. Shares in Walter Investment have climbed about 30% since the managers began buying the stock. On the bond side, the fund owns issues in a Walter bank loan due in 2016 with a 12.5% coupon rate.

In Search of Megatrends

Before Mitch Rubin and Morty Schaja left the Baron funds in 2006 to found RiverPark Advisers, they had a string of successes. Rubin had several stints running various Baron funds; at Baron Fifth Avenue Growth from 2004 to 2006, he outpaced the broader stock market and the average large-company growth fund. And during his 15-year tenure at Baron, Schaja held many roles, including chief operating officer and president, and saw the company’s assets under management grow from $40 million to $15 billion.

Now RiverPark is a family of six funds. Schaja serves as CEO, and Rubin manages three of the funds. Two funds caught our eye: RiverPark Large Growth (RPXFX) and RiverPark Long/Short Opportunity (RLSFX).

At RiverPark, Rubin uses the same approach he learned at Baron: He looks for growing, well-managed companies that are poised to benefit from long-term trends, such as aging populations, the move to digital content and information, and growing global consumption of energy and commodities. With the large-company fund, that’s led him to Apple, Monsanto and Google. Over the past year, Large Growth returned 8.9%, outpacing the S&P 500 by 3.4 percentage points.

Long/Short Opportunity’s strategy may seem like a radical departure from that of Large Growth. But Rubin sees Long/Short as the “culmination” of all the experience he has gained over the past 20 years. With Long/Short, he can invest in large and small companies that are growing, have sound management and are in a position to benefit from a megatrend. But the fund also allows Rubin to short stocks that fail miserably at fitting the bill—companies that are in contracting markets, are growing slowly (if at all), have low barriers to entry or are capital-intensive. “The long bets are our highest-conviction ideas,” says Rubin. “And the shorts keep us skeptical.”

Long/Short began in October 2009 as a hedge fund, but RiverPark converted it to a mutual fund in March 2012. Although the record of the fund’s retail shares goes back only to the conversion, regulators are allowing RiverPark to promote the hedge fund’s record going back to 2009 because the fund’s strategy has stayed the same. Since its inception, the hedge-fund-turned-mutual-fund has returned 19.6% annualized.


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