Fund Watch

Say Goodbye to Another Kip 25 Fund

Buy Excelsior Value & Restructuring soon, before it converts to a load fund.

By Andrew Tanzer, Senior Associate Editor, Kiplinger's Personal Finance

February 18, 2008

Piloted by the redoubtable Dave Williams since 1992, Excelsior Value & Restructuring has been one of those rare funds that you could just put away and hold.

In 2007, a dismal year for most value funds, Excelsior returned 10%. In the decade through January 31, 2008, the fund (symbol UMBIX) returned an annualized 11%, an impressive six percentage points per year ahead of Standard & Poor's 500-stock index.

Alas, it looks as though we'll soon have to remove Excelsior from the Kiplinger 25, the list of our favorite no-load funds. That's because it looks as though the fund -- and other members of the Excelsior family -- will begin levying sales charges in late March.

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The switch is the result of the acquisition of Excelsior's adviser, U.S. Trust, by Bank of America. The Excelsior funds will be branded as Columbia funds.

If you don't currently hold shares in Value & Restructuring, you might consider investing before the March switch. Assuming that shareholders approve all of the changes, existing Excelsior customers will be able to add to their holdings without paying a load after the change in status.

Based on the fee structure of other Columbia funds, most new investors will have to pay a 5.75% front-end sales charge for the class A shares and higher annual fees for the B and C class shares after the conversions take effect.

The change from no-load to load should have no effect on Value & Restructuring's management. Williams says the recent turbulence in the stock market has provided him with a chance to pick up some higher quality and faster growing companies: "I've been able to improve quality without paying up for it."

He's picked up shares of technology stocks such as IBM (IBM), Nokia (NOK) and Harris Corp. (HRS), in part because he thinks the switch in investor sentiment toward growth stocks and away from value stocks, which began in 2007, could take several years to play out.

Financial stocks have been crushed, so he is picking up some of these, too. "It's a no-brainer," says Williams, who owns shares of Morgan Stanley (MS) and Lehman Brothers (LEH).

He adds: "I don't care about next quarter's earnings. I think at least five years out when I buy a stock, since it takes that long for some restructurings to evolve." Williams holds his stocks for eight to ten years on average.

He's also looking abroad for growth. For instance, he holds Agco Corp (AG), an agricultural-machinery maker, mostly for its exposure to Brazil's booming farm sector. And down in Brazil, he owns oil giant Petrobras (PBR), airline GOL Linhas Areas Inteligentes (GOL) and an airplane manufacturer Embraer (ERJ), whose formal name is Empresa Brasileira de Aeronutica.

Williams is pulling back a bit from stocks of midsize companies. He likes to buy midcaps that are ripe for merger or acquisition by, for example, private-equity outfits. But this strategy isn't working well today, because the leveraged financing market that underpins leveraged buyouts is in acute distress. "In the last six months, we've had three companies whose deals fell apart," Williams says.

One of the refreshing things about Williams is the simplicity of his approach to stockpicking. Elaborate spreadsheets are not for him. "Numbers are important but are not my nitty gritty," he says.

Instead, he says, he looks for companies with above average business prospects and below-average valuations and a catalyst, such as restructuring, that will release value. And he likes to meet company bosses to hear their business plans. Most times, he says, the case to invest in a company can be laid out on a single piece of paper.

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