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Fund name: Wintergreen (WGRNX) (Update)

Objective: The fund seeks capital appreciation by investing in equity securities (including debt instruments convertible into equities) of companies of any size, domiciled in any country.

Adviser: Wintergreen Advisers, through which Mr. Winters provides investment services both for this fund and for separate accounts.

Manager: David Winters. Through May of 2005, Mr. Winters served as Chief Investment Officer of the Franklin Mutual Series of funds, which had assets in excess of $35 billion. He also served as the portfolio manager of Mutual Discovery, a global stock fund, from 2000 – 2005.

Opening date: October 17, 2005.

Minimum investment: $10,000 for regular accounts, $3000 for IRAs.

Expense ratio: 1.95%, on an asset base of about $400 million.

Comments: Mr. Winters is the legendary successor to the legendary Mike Price (bruited to be "the meanest s.o.b. on Wall Street"), who was himself successor to the legendary Max Heine. Mr. Winters rose from analyst with Mutual Series to co-manager, manager, then manager and chief investment officer. He left Franklin Mutual Advisers in May, 2005 to start his own fund, one with high expenses and a high minimum investment (well, high for those of us with . . . modest means and quickly sprouting first-graders). The financial press immediately started gushing about Mr. Winters and the fund. All of which seemed a bit much. When Roy and I were given the opportunity to speak with him, I was fully prepared to dislike the guy.

Unfortunately, I’ve failed miserably. From the first minutes of the interview, it was clear why folks gushed. Mr. Winters came across as incredibly bright, thoughtful, principled and personable. And he’s impressed with Roy’s work in building and sustaining FundAlarm, which is always the sign of a sharp intellect.

The story for Wintergreen is clear: Mr. Winters hopes to create a no-load version of the Mutual Discovery fund. Discovery’s track record is cited as a guide in the Wintergreen prospectus and Mr. Winters is clear that he wanted to run a fund in the style of Discovery but wanted to do so on his own terms, rather than as an employee of a large fund company.

Mr. Winters’ funds are distinguished by three factors:

  1. they will invest anywhere. Discovery’s top 20 holdings, for example, represent 10 different nations (current portfolio information on Wintergreen itself isn’t available, so I’m using Discovery as a surrogate for it).
  2. they will invest in anything. At base, Winters is a value investor who believes, correctly, that Mr. Buffett has a substantially-greater clue supply than does almost any other investor. As a result, Winters tends to invest in Berkshire-Hathaway but also to pursue Buffett’s commitment to looking for great companies (read: great managers) rather than just great stocks. He then buys them when they’re available at a substantial discount, which generally implies buying them when everyone else thinks they’re dog meat.
  3. Beyond that, Winters is willing to pursue a variety of opportunities that most equity managers don’t (and shouldn’t) pursue. Wintergreen’s prospectus lists some of the possibilities: merger and acquisition arbitrage, bankruptcies, restructurings, currency futures contracts, currency swaps and options, exchange-listed and OTC put and call options, and other futures contracts.

  4. they will act to unlock value. Many managers buy a stock when they perceive the presence of "a catalyst" to unlock value. Winters, on the other hand, is willing to be the catalyst. In general, he says that companies in which he has invested are receptive to advice and guidance about how to increase shareholder value. In some instances, however, they are not. At that point, Winters may bring pressure to bear in order to force change. This is a modestly-important point because it allows Winters to use a larger asset base to his advantage; that is, a larger fund can apply leverage more effectively than a smaller one. As a result, he sees asset growth as potentially positive for the fund’s returns.

This formula has worked to produce consistently strong returns with less volatility than, and a relatively limited correlation to, the global market.

One might reasonably worry about several factors before investing in the fund. One is a high expense ratio; with neither expense break-points nor an incentive fee structure, there’s little prospect for a notable reduction in fees over time. A second concern is the fund’s dependence on Mr. Winters himself. A number of writers have been concerned that Winters was working alone and might have trouble accommodating the considerable inflow of assets. Winters does not share those concerns. He believes that a fairer expense comparison is to hedge funds, which extract both a 2% fee and 20% of profits. And he’s now hired an analyst, Dan Geary, and has received 300 resumes from others hoping to join the team. He allows that he might add another analyst or two in the year ahead and he’s already supported by a team of long-time associates (who handle fund operations, finances, compliance, IT and so on) whom he describes as "brilliant."

Bottom Line: The two hedge-like funds have some striking similarities. Both funds are pricey when compared against the norms of the mutual fund world but cheap against the "2 and 20" world of hedge funds. Like Leuthold, Wintergreen provides smaller investors with access to enormous talent, a first-rate track record coupled with a small asset base, keen risk consciousness and a very distinctive portfolio. Neither fits neatly into a pre-assigned portfolio niche (the "small value box") but, for long-term investors, both deserve a place.

Fund’s website: http://www.wintergreenfund.com/.


July 1, 2006

Update (posted July 1, 2010):

Assets: $1.02 billion Expenses: 1.94%
YTD return (through 6/17/10): 3.2%
Our original thesis: "Wintergreen provides smaller investors with access to enormous talent, a first-rate track record coupled with a small asset base, keen risk consciousness and a very distinctive portfolio."

Our revised thesis: Scratch the part about "a small asset base." Underline the rest. Maybe add an exclamation point in there somewhere.

There are some managers who seem to have a knack for figuring it out, sometimes just in the nick of time. Mr. Winters strikes me that way. He beat his global fund peers during the market meltdown (10/07 – 3/09), then beat them again during the ensuing market melt-up (3/09 – 3/10), and just for good measure beat them a third time during the May 2010 mini-crash. He’s posted above-average returns (with below average volatility) in each calendar year and since inception. And the fund has substantially outperformed its peers (i.e., registered at least 100 bps more) in eight of 18 quarters, substantially underperformed in three and more-or-less tied in seven. Wintergreen is also substantially less volatile than its peers.

Wintergreen is substantially more volatile than Mutual Discovery (TEDIX, or the closed, no-load MDISX), Mr. Winters’ previous fund and the one upon which this is modeled. In recognition of their excellence, Mr. Winters has invested 4% of his fund into Franklin Resources, the parent company behind the Franklin Templeton and Mutual Series funds. SRI fans might reasonably object to both funds’ preference for tobacco stocks: Wintergreen holds Japan Tobacco, Imperial Tobacco, British American Tobacco, Philip Morris and Reynolds.

Mr. Winters continues to invest with conviction: the fund holds 35 stocks with multinational footprints and currency exposures. His investment decisions differ dramatically from those of his peers. None of his stock sector weightings is even vaguely comparable to his peers. By way of example, the typical global stock funds invests about 20% of its assets in tech, media and telecomm and another 10% in healthcare. Wintergreen’s weighting is zero. The top 10 stocks occupy just over half of the portfolio and his average hold time is about nine years. He has over a million of his own dollars invested in the fund.

Mr. Winters justifiably inspires a lot of confidence. If it’s not quite like letting Dr. Who run things for you, it’s close enough. While I regret the high minimum investment and high expense ratio, there’s no question that loyal investors – and Morningstar’s "investor returns" calculation suggests that Wintergreen investors have been remarkably loyal -- are getting their money’s worth, and perhaps more.



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