Value Added

Best Supporting Actors

Despite superb performances by four top money managers, Masters' Select Value has yet to capture a very big audience.

By Steven Goldberg, Contributing Columnist, Kiplinger.com

January 25, 2005

Now I'm not much of a movie critic, but I know what I like: a good story, a sound plot and a solid cast. I'm not always drawn to the big blockbusters.

This morning the Academy of Motion Picture Arts and Sciences announced their Oscar nominees. It was the typical hoopla with few surprises. The biggest shocker was that neither The Passion of the Christ nor Fahrenheit 9/11 -- two movies that generated the biggest buzz in 2004 -- were nominated for a big award.

I like that. I like the fact that lesser known, and probably better films, were among the Academy's favorites. It just goes to show you that the most popular isn't always the best; and the best may not be the most acclaimed.

That is certainly the case for Masters' Select Value (MSVFX). Here's a superb fund that isn't getting much attention from investors. More than four years old, this fund has a paltry $307 million in assets.

It isn't because of lousy returns. The fund has beaten the S&P 500 and other large-cap value funds handily every year. Indeed, it has never finished a calendar year below the top third among such funds. Over the last three years, it has returned an annualized 8%, putting it in the top 15% among its peers.

Expenses are reasonable at 1.28% annually and will drop as assets increase.

All-star cast

But the managers are the real story here. Each manager independently runs one-quarter of the fund:

• Mason Hawkins, manager of Longleaf Partners
  
  
• Bill Miller, manager of Legg Mason Value
  
  
• Bill Nygren, manager of Oakmark
  
  
• David Winters, manager of the Mutual Series funds
  
  

These are, arguably, the best value managers of our time. I've written about each of them favorably in this column.

What's more, this fund gives you Miller's stockpicking at a big discount to what it would cost you if you bought Legg Mason Value. And Winters's other funds all carry loads.

Finally, Ken Gregory, among the best fund researchers around, supervises the managers. In the unlikely event one of the managers loses his touch, Gregory will replace him.

Each manager picks between eight and 15 stocks. Gregory argues that limiting first-rate fund managers to their best ideas improves their performance.

Two other Masters' funds -- Equity (MSEFX) and International (MSILX) -- are closed to new investors. The fourth, Masters' Select Smaller Companies (MSSFX), is a compelling option.

But Masters' Select Value has the most proven lineup.

What you get in Masters' Select Value is a great large- and mid-cap value fund.

What they like now

Given the imagination with which these four managers approach their work, it's not surprising that the fund looks a bit unconventional.

Thanks largely to Winters's affection for foreign stocks, 14% of the fund is overseas. And, 18% is in cash, because of Winters's and Hawkins's worries about the market's valuation.

Miller's eclectic definition of value -- any "miss-priced stock" -- also gives the fund some very growthy looking names.

For example, you'll find Warren Buffett's Berkshire Hathaway (BRKB) in this fund. But you'll also find Amazon (AMZN), a longtime Miller favorite.

Other top holdings include:

• Home Depot (HD). This is the largest holding, comprising 4% of the fund. Nygren likes this stock -- one of many premium companies he thinks are now selling at average valuations.
  
  
• IAC/Interactive Corp. (IACI). This growthy Miller pick owns a fistful of Internet companies, such as Expedia, Match.com and Hotels.com and is the fund's number-two holding.
  
  
• Washington Mutual (WM). Nygren believes this cheap thrift has enormous growth potential. Plus, it yields 4.4%.
  
  
• FedEx Corp. (FDX). This is Hawkins way of playing global growth and a rise in Internet retailing.
  
  

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