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February 2005  Email this  Print this
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FUNDS
16 Funds We Love
(Page 2 of 7)
Bridgeway Aggressive Investors 2
John Montgomery bought his daughter an Apple iPod for her most recent birthday, and he uses a BlackBerry, the hand-held communications device from Research In Motion. The companies are among the biggest holdings in Bridgeway Aggressive Investors 2 (BRAIX), which Montgomery manages, recently accounting for about 6% and 9% of the fund, respectively. But Montgomery, 49, is no Peter Lynch-he's not part of the "buy what you know" crowd. He owns the stocks simply because one (or more) of the four computer screens he monitors daily told him to buy them.
In Montgomery's office, there is no ticker tape, no cable-TV anchor blathering about the stocks all day. "I can't tell you if the market is up or down," says Montgomery. "I'm just trying to pick the next good stock." His guides are five computer models spanning different investment styles-scouting stocks with upward momentum, for instance, or those selling at deep discounts. A Massachusetts Institute of Technology engineer with a Harvard MBA, Montgomery won't share details of his sophisticated models -- they are his bread and butter, after all.
Aggressive Investors 2, which debuted in 2001, is off to a respectable start. Like Brandywine, it invests in growing companies of all sizes, so we compared it with all growth funds. In that company it lands in the top 10% for three-year returns. And in the late months of 2004, the fund had a great run, gaining 23% from September through November. A look at Montgomery's other funds convinces me that the long-term prospects are good. Aggressive Investors 1, now closed to new investors, delivered an annualized 22% to shareholders during the ten years to December 1. The two funds aren't twins, but they are close enough that "it's a flip of the coin" between the two, Montgomery says.
I'm also willing to overlook a recent run-in with the Securities and Exchange Commission. A miscalculation of fees resulted in a $4.4 million overcharge to shareholders in three funds, including this one. The money will be paid back with interest, and steps are now in place to prevent such errors. Montgomery's mea culpa was forthright and heartfelt. Indeed, his moral compass is a big part of this fund family's appeal; his management firm donates half of its after-tax profits to charity. And there's no clearer evidence that Bridgeway puts shareholders first than the alacrity with which it closes its most popular funds, before they become too unwieldy to be successful.
Montgomery cheerfully says his computer models won't be right all the time, but adds that being right all the time isn't necessary in his line of work. "The cool thing about investment management is that if you get it right 60% of the time, you beat the market. That's not true of surgery."
--Anne Kates Smith
Clipper
I like managers who are careful. And hardly anyone is more careful than James Gipson and his six co-managers at Clipper (CFIMX). From their Beverly Hills base, they scour the country in search of underpriced stocks of large companies. But they are highly selective. The fund usually contains just 25 to 30 stocks.
Gipson and his co-managers tear apart companies' financial statements and talk to corporate managers, competitors, suppliers, customers and anyone else they can think of. When they get serious about a stock, they assign two people to study it: one to dig out the bullish case, the other to put together the bearish side. Then they sit down with Gipson, and the three of them hash out whether the stock is worth buying.
Clipper's managers buy beaten-down stocks for which they see promise that others don't. They thrive on controversial stocks. Recent favorites included Fannie Mae, which is under the scrutiny of federal regulators, and Marsh & McLennan, the insurance firm that has been in New York Attorney General Eliot Spitzer's line of fire.
To get into the fund, a stock has to sell at less than 70% of what Gipson and his colleagues determine to be its "intrinsic value." That's a stringent standard, which often leaves the fund awash in money. Indeed, Clipper recently had 25% of assets in cash. "Right now, it is uncommonly difficult to find cheap stocks of any variety," Gipson says. Near-clone PBHG Clipper Focus (PBFOX) offers the same stocks in the same proportions as Clipper -- without the cash.
Once Clipper buys a stock, it tends to stick around a while. The average stock stays in the fund four years. There's even less turnover among the managers themselves. Kelly Sueoka joined the team three years ago -- the first new addition since 1987. Gipson and Michael Sandler have been managers since the fund's launch in 1984.
Both funds have performed superbly. Among funds specializing in large, undervalued companies, Clipper ranks in the first decile for five, ten, 15 and 20 years. What more could you ask? Clipper Focus PBHG, with a shorter track record and a higher expense ratio, has a slightly better five-year record. The one negative: Clipper isn't a steady-Eddie fund. Because it's concentrated in so few stocks, it tends to have some poor years (such as 2003 and 2004) along with its many exceptional years. But look what you get if you're patient!
--Steven T. Goldberg
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