Great money managers come in all types -- value, growth, contrarian and blend -- and sizes. Generally speaking, most retail investors along with the media outlets tend to closely follow the moves of well-known investors such as Warren Buffett, George Soros or Carl Icahn. Since their transactions are so widely followed, we’ve chosen to take the path less traveled by looking at ten influential managers that don’t quite get the same media attention.
Riding the coattails of successful investors is a tried-and-true investing strategy and each on the list below is a worthy candidate that you may not have considered before.
Scientist turned money manager — Wang has run the Oceanstone Fund (OSFDX) since its inception in 2006. Tiny in terms of assets, coming in at $45.9 million, Wang’s achieved an annualized total return of 51.8% over the past five years as of November 1. It’s no wonder Morningstar gives it a five-star rating. So private is the man that even shareholders can’t speak with the manager.
He’s definitely a contrarian.
Wang’s strategy is to find undervalued stocks compared to their intrinsic value. Not uncommon in the investment world, what makes his philosophy unique is that he’s prepared to be 100% in cash if there are no investment opportunities available. Equally, Wang’s not afraid to own a bunch of small-cap stocks, if that’s where the value is. Currently, the fund’s cash position is 65% with six stocks representing the remainder. Its largest holding is ITT Educational Services (NYSE:ESI), which Oceanstone acquired in the first quarter of 2013. ESI’s average trading price during the first quarter was $15.59. Its price as of December 23 was $34.48
The Florida-based money manager hit a rough patch in 2011 when his $8.8 billion Fairholme Fund (FAIRX) lost 32.4% compared to a 2% gain for the S&P 500. It seemed that everything Berkowitz touched turned sour including investments in American International Group (AIG) and Bank of America (BAC). Even Berkowitz’s long-time partner, Charlie Fernandez, departed the business that October. Fortunately for investors the fund rebounded achieving a total return of 35.8% in 2012 and is up 34.9% in 2013. Berkowitz’s big play in financial services (75% invested in financial services-related companies) is starting to pay dividends with AIG, the fund’s largest holding with a weighting of 51.8%, up 37.1% through November 1. The Fairholme Funds’ estimated cost to purchase the 101 million shares is between $29 and $32. Berkowitz plans to hold AIG for another 5-7 years.
The deep-value investor uses three criteria when analyzing individual stocks: creditworthiness, growth in book value, and the share price relative to that book value. Whitman tends to own stocks that trade around one times book value or less. As of the end of October the index traded at 2.6 times book value suggesting very few opportunities exist for investors of Whitman’s ilk. However, that doesn’t mean the veteran investor hasn’t been able to find suitable candidates.
In the third quarter ended July 31, 2013, Third Avenue (Whitman’s firm) picked up 269,034 shares of Pargesa Holding S.A. (OTCBB:PRGAF), a European company with several key investments including 7.5% of Pernod Ricard (OTCBB:PDRDY), the makers of global icons Chivas Regal and Absolute Vodka as well as many other liquor brands. Whitman’s Third Avenue Value Fund (TAVF) owned Pargesa between 2004 and 2010; acquiring the latest shares at more than a 30% discount to its net asset value, it looks like it will hold for an extended period once again. Interestingly, in its analysis of Pargesa, it determined that Total SA (NYSE:TOT) was also a good investment acquiring 823,730 shares in the French oil company at an average trading price of $50.
Its most interesting move, however, is its 21% investment in Cavco Industries (Nasdaq:CVCO), an Arizona-based manufacturer of manufactured homes. In 2009, Third Avenue partnered 50/50 with Cavco to buy the manufactured-home assets of Fleetwood Enterprises. A year later the partnership acquired the assets of Palm Harbor, which had gone bankrupt. The two purchases cost Third Avenue $55 million. In June, Cavco acquired Third Avenue’s 50% interest in exchange for 1.8 million shares in Cavco. On October 15, Cavco filed a prospectus indicating Third Avenue is selling its entire stake in the company netting it $106 million for an annualized total return of 17.8% over four years.
Romick joined First Pacific Advisors in 1996. Today, not only is he a portfolio manager, he’s also the president of the company. FPA manages $26 billion from its base in Los Angeles with Romick sharing the duties for the FPA Crescent Fund (FPACX) with two other managers. They collectively see few opportunities in the markets and as a result the fund’s gross long equity exposure has shrunk from 63.8% at the end of 2012 to 54.2% at the end of September. On a positive note, the 11 stocks it’s sold from the portfolio in 2013 have provided an average gain of 64% — all of them making money. Patience is their motto and historical performance bears this out. Since inception in June 1993, it’s achieved an annualized return of 11.02%, 226 basis points higher than the S&P 500. Of its current equity holdings, Microsoft (Nasdaq:MSFT) represents the largest position at 3.54% of the fund’s net asset value. Romick first purchased 2 million shares of Microsoft between July and September 2010; today, the fund owns 11.7 million shares in the technology giant.
Most are familiar with Greenblatt because of his Magic Formula investment theory which spawned the book Joel Greenblatt: The little Book that Beats the Market. Greenblatt looks for stocks with high returns on capital combined with high earnings yields. Gotham Capital, his hedge fund, had $2.3 billion invested in 839 stocks as of the end of June.
Gotham’s largest holding as of the end of the second quarter was Irish-based pharmaceutical company Warner Chilcott, which was acquired by Actavis (NYSE:ACT) on October 1. Greenblatt first bought 58,000 shares in the company in the second quarter of 2011 and sold out the entire stake by the end of that year. Gotham got back in in a big way in the first quarter of this year picking up 1.37 million shares for $18.39 million. Greenblatt sold off 150,000 shares in the second quarter. Assuming he took the Actavis shares (0.16 Actavis shares for every share of Warner Chilcott) in the deal, Gotham’s overall return was 77% for a nine-month investment.
There aren’t many women managing money but one of the best is Sarah Ketterer, CEO of Los Angeles-based Causeway Capital. Prior to setting up her own firm in 2001 with partner Harry Hartford, the two worked together for seven years running Hotchkis and Wiley’s international value strategy. Feeling as though they could better serve their clients as an independently-owned firm, the two left Hotchkis and Wiley to set up their own shop. Causeway considers itself a value investor that tends to favor companies that consistently return capital to shareholders in the form of dividends and share repurchases.
A classic example of what they look for is Tesco (OTCBB:TSCDY), the UK’s largest supermarket. Tesco had a miserable time with Fresh & Easy, its U.S. food chain operating 200 stores in California, Nevada and Arizona. In September the chain was sold to Ron Burkle’s Yucaipa Companies. Ketterer felt Tesco's US problems were a temporary blip. Causeway’s International Value Fund (CIVVX) started buying Tesco in the third quarter of 2011 picking up 3.1 million shares. Fast forward to June 2013 and the fund owns 12 million shares valued at $60.4 million as of the end of June. In the four months since the June quarter-end, Tesco’s shares have increased by 15%. Causeway tends to hold for three years on average so look for it to begin reducing its Tesco holdings towards the end of next year.
This hedge fund guru has been investing for a very long time. In the middle of October Cooperman appeared on CNBC’s Squawk Box describing stocks as fairly valued at the moment. They aren’t cheap but they’re not expensive either. Cooperman’s Omega Advisors has $9.5 billion in assets under management and those assets are up 26% through October 15 versus 20% for the S&P 500.
Cooperman appeared at the CNBC-Institutional Investor Delivering Alpha Conference in July providing investors with his 10 best ideas. Of the 10, Qualcomm (Nasdaq:QCOM) and SandRidge (NYSE:SD) have delivered the best performance since his July recommendations, up 8.2% and 17% respectively. Looking back at his 10 predictions from the same conference in 2012, all but one made money over the past year averaging a 31.5% total return compared to 27.2% for the S&P 500.
You likely haven’t heard of the Jenkintown, Pennsylvania-Based money manager, whose Matthew 25 (MXXVX) fund was named by Bloomberg Markets as the best diversified stock fund in the US for 2012. Named after the 25th chapter of the gospel of Matthew, Mulholland typically owns between 12 and 25 stocks, invests in any size of company and is willing to hold as much as 25% of the portfolio in a single investment. With a laser-like focus, Matthew 25’s achieved a 15-year annualized total return of 9.42%, 432 basis points better than the S&P 500. That’s incredible when you consider that the fund’s assets were down to $22 million during the market lows in late 2008 and early 2009; today they are $732 million.
Mulholland tends to hold stocks for a significant amount of time. The fund’s number one holding at a weighting of 10.42% is Apple (Nasdaq:AAPL), which he first bought in the first quarter 2008 at an average share price of $123.45. Today, the fund owns 150,700 shares of the company including 24,200 picked up in Q2 2013 for $430 per share. You can expect Mulholland to hold Apple’s stock for many years to come. Many of its top holdings have been held for years. Its newest stock is Devon Energy (NYSE:DVN) which was added in the second quarter at an average cost of $58.48 per share. It’s up almost 9% on its latest addition.
Rogers’ firm, Ariel Investments, manages $7.3 billion out of its Chicago headquarters offering six mutual funds and nine separate account strategies. Founded in 1983, it considers itself a patient investor undertaking the fundamental research necessary to achieve both absolute and relative long-term performance. Originally small-cap value investors, Ariel has broadened its horizons beyond the US markets. Quite possibly its greatest attribute is the concentrated nature of all six of its funds. Holding between 25 and 100 stocks depending on the fund, it invests in its highest conviction ideas. That philosophy’s been a winner in the long term.
The Ariel Fund (ARGFX) is the company’s largest with $2.2 billion in net assets. It tends to buy stocks whose market caps are between $1 billion and $7.5 billion. During the second quarter it made one buy and two sells — picking up MTS Systems Corp. (Nasdaq:MTSC) and dumping both Life Technologies (Nasdaq:LIFE) and Zimmer Holdings (NYSE:ZMH). MTS Systems specializes in high-performance physical testing for manufacturers. With a world moving towards virtual testing, Rogers maintains its contrarian view will pay off long-term. Picking up 353,400 shares for approximately $58 per share, I imagine the fund will pick up more should it drop in value in the coming months. As for its sells, Life Technologies was sold in April on the news Thermo Fisher Scientific (NYSE:TMO) was buying it for $76 per share. As for Zimmer, it wanted to deploy the $16 million elsewhere.
When the CEO of Geico’s capital operations announced he was retiring at the end of 2010, most probably thought he would adjourn to the $13 million house Simpson and his wife had bought only months earlier in Naples, Florida. Think again. He lasted a day in retirement establishing SQ Advisors with the SEC on December 20, 2010. At the time he indicated he’d be handling money for friends, family and charities with about $200 million in initial assets. One year later, Simpson’s firm had $734 million under management; by June 30 of this year that number had grown to $1.7 billion invested in just 15 stocks.
Simpson’s largest holding is Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), which makes sense given he worked for and with Warren Buffett for 31 years. The newest edition to the portfolio is United Parcel Service (NYSE:UPS), which was added in the second quarter. Simpson bought 1.44 million shares of the logistics company at an average price of $85.78 per share. Those shares are now trading above $98. In terms of selling, Simpson unloaded his entire stake in Lowes (NYSE:LOW) in the second quarter. Once holding as many as 3.8 million shares in the home improvement company; Simpson acquired Lowes stock at prices in the high teens and low 20s, Simpson sold the remaining 1.8 million shares in Q2 around $40.
While Warren Buffett hasn't been included in my list of great money managers; he's the gold standard by which all of these men and one woman judge their careers. None would look out of place sitting around a table with the Oracle of Omaha discussing what makes a great investment. Passion plays a key role in a manager's long-term success. All ten have got it and then some.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.
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