Author Archives: Editor

Evermore Global Value “A” (EVGBX)

By Editor

This profile has been updated. Find the new profile here.

Objective

Evermore Global Value seeks capital appreciation by investing, primarily, in the stock of companies that are both undervalued and undergoing change and, secondarily, in securities of “distressed” companies or those involved in merger/arbitrage situations. It may invest in any country, any market capitalization, and any industry. It generally invests in mid- and large-capitalization companies. 40-100% of the portfolio will be non-US, with the option buying holding sovereign debt and participations in foreign government debt. It can short.

Adviser

Evermore Global Advisor, LLC. Evermore was founded in 2009 by two alumni of the Mutual Series funds, David Marcus and Eric LeGoff. They have two investment strategies, Global Value and European Value, which are packaged for individual and institutional investors through their two mutual funds, separately managed accounts, at least one hedge fund, and offshore funds for non-U.S. residents.

Manager(s)

David Marcus and Jae Chung. Mr. Marcus is co-founder, chief executive officer, and chief investment officer of Evermore Global and lead portfolio manager of the Funds. He’s had a varied and colorful career. He was a research analyst at Heine, the advisor to the original Mutual Series funds. He joined Franklin when the Mutual Series was acquired, and managed or co-managed Franklin Mutual European, Franklin Mutual Shares, and Franklin Mutual Discovery. He left Franklin in 2000 and managed a couple hedge funds and the family office for the Stenbecks, one of Sweden’s wealthiest families. Mr. Chung served as a research analyst (and, briefly, fund co-manager) during Mr. Marcus’s years at Franklin, then went on to work as a senior research analyst at Davis Advisors, advisers of a very fine group of value-oriented funds including Davis New York Venture Fund, as well as the Davis Global, International, and Opportunity Funds. He also ran several Asia-domiciled funds. Mr. Chung is a graduate of Yale University. They’re supported by one research analyst.

Management’s Stake in the Fund

As of December 11, 2009, Mr. Marcus had less than $50,000 in the fund and Mr. Chung had nothing. Given that the fund hadn’t yet been offered to the public, that’s not terribly surprising.

Opening date

December 30, 2009.

Minimum investment

$5000 for regular accounts $2000 for IRAs

Expense ratio

1.6% on assets of $22 million. The “A” shares carry at 5.0% front load but are available no-load, NTF from Schwab and Scottrade.

Comments

There are a few advisors that get active management consistently right. But they are few indeed. Getting it right requires not only skill and insight (knowing what to buy or sell), but also a fair amount of courage (being willing to act despite the risks). Large firms may have the insight (one imagines that Fidelity probably generates a fair number of intriguing leads) but they lack the courage. Their business model relies on steady inflows from retirement accounts – directly or through pension managers — and those folks are not looking for thrills. In addition to the ubiquitous market risk, such managers face what Jeremy Grantham calls “career risk.” One disastrous, or wildly premature, call leads to a billion in outflows and a quick trip to the unemployment line.

That leaves much of the hope for active management in the realm of smaller funds. Even here, some lack the fortitude. Many lack the skill.

There are a handful of investment families, though, that have made a long tradition of making bold moves and getting them right. The Acorn Fund (ACRNX) under Ralph Wanger was one. The Third Avenue Funds under Marty Whitman are another. But the poster child for aggressive value investing are the folks trained by the legendary Max Heine or Heine’s more legendary protégé Michael Price, jointly designated by Fortune (12/20/99) as two of the “Investors of the Century.” (Mr. Price alone carried, and deeply resented, Fortune’s designation as “The Meanest SOB on Wall Street.”) Mr. Price’s protégés include David Winters, manager of the phenomenally successful Wintergreen Fund (WGRNX) and many of the folks who went on to apply his discipline in running the Mutual Series funds.

Mr. Marcus, lead manager for Evermore Global Value, was another of Price’s students. He left the Mutual Series funds shortly after Mr. Price’s own departure, but in the wake of their firm’s acquisition by Franklin. He spent the next decade in Europe, working with one of Sweden’s wealthiest families and running hedge funds. At some point, he reputedly became nostalgic for the camaraderie he experienced at Mutual Series pre-Franklin, and resolved to work to recreate it.

Evermore’s investment discipline parallels Wintergreen’s and Mutual Series’. They look for deeply undervalued stocks, but they don’t take the “buy dirt cheap and wait to see what happens” approach. Many value managers are essentially passive; they buy, expecting or hoping for a turnaround, and sell quickly if “bad” becomes “worse.” The Price protégés look further afield – into distressed debt, “special situations,” bankruptcies, corporate spin-offs – and actively “assist” recalcitrant corporate managers unlock value. That willingness to pressure poorly run companies earned Mr. Price the “SOB” sobriquet. Mr. Winters puts a far more affable spin on the same strategy; he argues that even ineffective managers want to be effective but sometimes lack the will or insight. He helps provide both. Mr. Marcus seems intent on using the same strategy: “We often buy substantial stakes and, from time to time if necessary, use our influence to foster value creation.”

He imagines a compact (20-40 name) portfolio with low turnover (20% or so), roughly akin to Wintergreen’s. The fund’s asset allocation roughly matches that for Wintergreen and Mutual Global Discovery. From inception through the end of August 2010, the fund has performed in-line with its World Stock peers though it substantially outperformed them over the volatile summer months.

Bottom Line

The Heine/Price/Mutual Discovery lineage is compelling. The fact that they have Mr. Price as an advisor helps more. The Mutual Series managers, past and present, folks tend to embody the best of active management: bold choices, high conviction portfolios, and a willingness to understand and exploit parts of the market that few others approach. Evermore, for those who access the no-load shares, is priced more attractively than either Discovery or Wintergreen. For folks still brave enough to put new money in equities, this is a very attractive option.

Fund website

Evermore Global Advisors

© Mutual Fund Observer, 2011.  All rights reserved.  The information here reflects publicly available information current at the time of publication.  For reprint/e-rights contact [email protected].

Artisan Value (ARTLX), April 2011

By Editor

Objective

Multi-cap value equity. The managers have three broad criteria for equity selection: attractive valuation, sound financial condition and attractive business economics. The managers may invest in turnarounds, companies in transition, and companies that have experienced (short-term) earnings shortfalls. The minimum market cap $1.5 billion. While the primary focus is on U.S. companies, up to 25% of the portfolio can be invested in foreign firms.

Adviser

Artisan Partners, LP. Artisan manages $45 billion in eight mutual funds, including Opportunistic Value and separate accounts. Five of its seven existing funds are closed to new investors. Artisans’ managers are all co-owners of the advisory firm.

Managers

Daniel L. Kane, Thomas A. Reynolds IV, and Craig Inman. 

Opening date

March 27, 2006

Minimum investment

$1000 for both regular and IRA accounts. The minimum is waived for investors establishing an automatic monthly investment of at least $50.

Expense ratio

1.06% on assets of $260 million, as of June 2023. 

David’s comments

There are two concerns before investing in Opportunistic Value. First, is there any reason to believe that the managers have the expertise to invest large caps? That’s a good question and one for which there’s no immediate answer. And, second, with two closed funds and separate account assets already, are they overstretched? The fund assets sit around $5 billion, each has 50% turnover. That’s a lot of money, though certainly not beyond the range of what many multi-cap managers at smaller firms (Ron Muhlenkamp and four analysts handle over $3 billion, Wally Weitz handle $5 billion, the folks at Longleaf handle $9 billion). For both questions, the answer might be “a stretch but not necessarily overstretched.”

Weighed against that

(1) Artisan gets it right. Artisan has a great track record for new fund launches. The company launches a new fund only when two conditions are satisfied: it believes it can add significant value and it has a manager who has the potential to be a “category killer.” Almost all of Artisan’s new funds have had very strong first-year performance (their most recent launches – International Small Cap and International Value – finished in the top 1% and 24%, respectively) and above average long-term performance. All of the managers are risk-conscious, so even the “growth” managers tend toward the “value” end of the spectrum. Beyond that, Artisan tends to charge below average expenses, they don’t pay for marketing, and close their funds early.

(2) Satterwhite gets it right. Before joining Artisan in 1997, the lead manager – Scott Satterwhite – ran a very successful small-value portfolio called Biltmore (later, Wachovia) Special Values. His main charge at Artisan, Small Cap Value (ARTVX), tends to have modest volatility and above average returns. It tends to outperform its peers in rocky markets and trail only slightly in boisterous ones. His newer charge, Midcap Value (ARTQX) has had a phenomenal four-year history despite cooling over the past twelve months.

(3) A tested discipline should help them keep it right. Opportunistic Value will use the same stock selection criteria that have served the managers well for the past decade in their other two funds. As a result, there should be relatively few surprises in store.

Bottom line

For investors interested in a place on the “all cap” bandwagon, this is about as promising as a new offering can get.

Company link

http://www.artisanfunds.com/mutual_funds/artisan_funds/value.cfm

April 1, 2006
© Mutual Fund Observer, 2011.  All rights reserved.  The information here reflects publicly available information current at the time of publication.  For reprint/e-rights contact [email protected].

Ariel Focus (ARFFX), May 2006 (updated June 2023)

By Editor

. . . from the archives at FundAlarm

These profiles have not been updated. The information is only accurate as of the original date of publication.

Fund name

Ariel Focus (ARFFX)

Objective

Non-diversified, mid- to large-cap domestic value fund. Generally speaking, the fund will invest in 20 stocks with a market cap in excess of $10 billion each; half of those stocks will be drawn from the portfolios of Ariel Fund or Ariel Appreciation. Ariel funds favor socially-responsible company management; the firm avoids tobacco, nuclear power and handgun companies. Ariel argues that such corporations face substantial, and substantially unpredictable, legal liabilities.

Adviser

Ariel Capital Management, LLC. Ariel manages $19 billion in assets, with $8 billion in its two veteran mutual funds. Ariel provides a great model of a socially-responsible management team: the firm helps run a Chicago public charter school, is deeply involved in the community, has an intriguing and diverse Board of Trustees, is employee-owned, and its managers are heavily invested in their own funds. One gets a clear sense that these folks aren’t going to play fast and loose either with your money or with the rules.

Manager(s)

Investment team led by Charlie Bobrinskoy (Ariel’s Vice Chairman and Director of Trading, previously with Salomon/Citigroup), and Tim Fidler (Ariel’s Director of Research).

Opening date

It varies. The firm ran in-house money using this strategy from March 1 through June 29 2005. The fund was offered to Illinois residents and Ariel employees beginning June 30, 2005. It became available nationally on February 1, 2006.

Minimum investment

$1000 for regular accounts, $250 for an IRA. The minimum is waived for investors establishing an automatic monthly investment of at least $50.

Expense ratio

1.00% (after expense waiver) with assets of $41 million. Ariel estimates that first-year expenses would be 1.13% without the waiver. The waiver is active through September 2024. 

Comments

This is the latest entrant into the “I want to be like Warren Buffett” sweepstakes. I had the opportunity to speak with Tim Fidler, one of the co-managers, and he’s pretty clear that Mr. Buffett provides the model for Ariel investing, in general, and Ariel Focus, in particular. The managers are looking for companies with a sustainable economic advantage — Mr. Buffett calls them companies with “moats.” Ariel looks for “high barriers to entry, sustainable competitive advantages, predictable fundamentals that allow for double digit earnings growth, quality management teams, [and] solid financials.” In addition, Ariel espouses a concentrated, low-turnover, low-price style. Mr. Fidler had been reading Artisan Opportunistic’s materials and was struck by many similarities in the funds’ positioning; he characterized his fund as likely “more contrarian,” which might suggest more patience and longer holding times. (Artisan Opportunistic was discussed in last month’s FundAlarm Annex.)

Ironically, for all of the Buffett influence, there’s no overlap between Buffett’s (i.e., Berkshire Hathaway’s) 32-stock portfolio and the 20 stocks in Ariel Focus.

What might drive your investment consideration with Ariel Focus? Two factors:

  1. It’s a concentrated, non-diversified portfolio. That should, in theory, drive risk and return higher. In practice, the evidence for either proposition is mixed. There are four firms that each offer two funds with the same managers and the same value philosophy, one diversified and one focused. They are Oakmark/Select, Yacktman/Focused, ICAP Equity/Select, and Clipper/Focus (yes, I know, there’s been a recent manager change, but most of the three-year record was generated by the same management team). Generally speaking, the focused fund has exhibited higher volatility, but only by a little (the standard deviations for Oakmark and Oakmark Select are typical: 8.2% versus 8.9%). The question is whether you’re consistently paid for the greater risk,and the answer seems to be “no.” There’s only one of the four pairs for which the Sharpe ratio (a measure of risk-adjusted returns) is higher for the focused fund than for the diversified one. The differences are generally small but have, lately, favored diversification.
  2. The fund is building off a solid foundation. In general, 50% of the Focus portfolio will be drawn from names already in Ariel or Ariel Appreciation. Those are both solid, low-turnover performers with long track records. Focus will depend on the same 15 person management team as Ariel; most of those folks are long-tenured and schooled in Ariel’s discipline. Their task is to apply a fairly straightforward discipline to a limited universe of new, larger stocks, about 90 companies, in all. If they’re patient, it should work out. And they do have a reputation for patience (their corporate motto, after all, is “slow and steady wins the race”).

Bottom line

If you believe in buying and holding the stocks of good, established companies, this is an entirely worthwhile offering. The advisor’s high standards of corporate behavior are pure gravy.

Company link

Ariel Focus (Ariel Web site)

May 1, 2006

Update

(posted September 1, 2008)

Assets: $40 million

Expenses: 1.25%

YTD return: (4.8%)(as of 8/29/08)

Ariel Focus has been slowly gaining traction. Its first year (2006) was a disaster as the fund trailed 97% of its peers and 2007 was only marginally better with the fund trailing 79% of its peers. 2008 has been a different story, with the fund now leading 97% of its peers. That performance has helped the fund move back to the middle of the pack, with a three-year annual return of 2.3%.

The managers attribute most of their recent success, which began in the second half of 2007, to the hard-hit financial sector. Financials helped ARFFX because (1) they didn’t own many of them and (2) the companies they did hold – Berkshire-Hathaway, JPMorgan, Aflac – weren’t involved in the most-toxic part of the mess. They were also helped by the managers’ skepticism about the durability of the commodity and oil bubble, which has helped its consumer holdings in the past several months.

Unfortunately the fund’s improving fortunes haven’t been enough to forestall layoffs at Ariel. The company is celebrating its 25th anniversary this year but the party’s a bit bittersweet since it’s accompanied by the loss of a contract to manage part of Massachusetts’ retirement fund and the laying off of 18 staff members.

© Mutual Fund Observer, 2011.  All rights reserved.  The information here reflects publicly available information current at the time of publication.  For reprint/e-rights contact [email protected].