Mutual Funds
Recent articles:
• Hot returns can lure you into the wrong REIT, 7/29/2003
• Convertibles are hot: Should you hitch a ride?, 7/22/2003
• Find hidden value in 'stocks under rocks', 7/15/2003
More...
| | Mutual Funds
Tiny fund goes its own winning way
Morningstar calls it a midcap, but the little-known Boyar Value Fund buys stocks that span the spectrum as long as they offer the promise of substantial gains.
By Timothy Middleton
One of the hobgoblins of investing is the notion of style purity. This is the idea, writ large at Vanguard Group, that index funds are the Holy Grail. Consultants have sold this tin cup to just about every tin-eared investor.
Heres what I want from a mutual fund: money. If the manager can make it by reading the entrails of goats, the goat is on me. If a manager can make it by reading a balance sheet, I like the fund even more; I get enough entrails in the company cafeteria.
Mark Boyar runs a fund that would tie an indexer into a pretzel. Boyar Value Fund (BOYAX), which Morningstar slots as a midcap fund, relates to that category as Michael Jackson does to human beings. One of his picks is as small as the local International House of Pancakes (IHP, news, msgs). Another is as big as Bristol-Myers Squibb (BMY, news, msgs).
Since opening the fund in 1998, hes delivered annualized returns of 7.2%. The ultimate all-cap index fund, Vanguard Total Stock Market Index (VTSMX), is in the hole by a point and a quarter for the five-year period.
The most promising
If youre a good stock-picker, you can make a lot more money than you can with indexing, says Boyar. Steven Rog, an associate of a financial planning firm in Bohemia, N.Y., agrees. Since Boyar began publishing his investment recommendations in 1975, Rog says, 171 of the 388 companies Boyar has examined have been acquired or otherwise reorganized at a profit to investors.
Rogs firm is constantly prospecting for top funds and has half a dozen candidates on its list. However, none seem as promising as Boyar Value, he says.
With only $20 million in assets, Boyar Value is also an undiscovered fund. The entire Boyar shop, which also handles private portfolios, has assets of only $300 million. But the bear market has sent all of us scurrying for managers who can preserve as well as enhance wealth.
Boyar Value has lost money in only one of its five years -- last year, when it declined 10.5%, about half the markets fall. The good times will take care of themselves; the bad times are what I get paid for, its manager says.
New York-based Boyar Asset Management first made its mark with Asset Analysis Focus, a newsletter sold to institutional investors picking and panning stocks. Louis Rukeyser, a big fan of value investing, began interviewing Boyar on his show in the 1970s.
Boyar is drawn to stocks in trouble. He wants to buy companies at a big discount to what a private buyer would pay for them, or to their liquidation value. He looks at companies in any industry of any size. His top positions at the end of June would have fit poorly into the midcap style box.
| Boyar Value Funds top holdings | | Stock | Capitalization | | J.P Morgan Chase (JPM, news, msgs) | Large | | MGM Mirage (MGG, news, msgs) | Mid | | Bristol-Myers Squibb (BMY, news, msgs) | Large | | AOL Time Warner (AOL, news, msgs) | Large | | Carnival (CCL, news, msgs) | Large |
|
Source: Fund
Another holding, IHOP, is small, with a market cap less than $1 billion. It had been the funds top holding as recently as May, but the position has been trimmed as the stock soared more than 40% this year.
Beyond cheap stocks
But Boyar doesnt just buy cheap stocks. He looks for certain characteristics, such as a strong consumer franchise, as is true of AOL Time Warner (AOL, news, msgs). He spots troubled balance sheets that managements finally attack, as with IHOP. He finds giants such as Bristol-Myers, which he believes is suffering from transitory problems, and meanwhile, yields more than 4%.
And hes drawn to special situations. At MGM Mirage (MGG, news, msgs), octogenarian Kirk Kerkorian runs a Las Vegas cash machine that couldnt be replicated for twice what the stock goes for. Aging and without an heir apparent, Kerkorian could well be succeeded by a different owner at a premium price.
Also, Boyar invests for long periods -- six years or more -- and he describes Kerkorian as a guy wed like to invest with for a long period. Any time you took a position in anything he was doing, unlike Ron Perelman, you always made money with him.
Boyar says it can take years for the value he sees in companies to be widely recognized. That means low turnover, of around 15%, which is tax-friendly, even after the capital gains rate was cut to 15%. He also believes in concentrating his bets on no more than about three dozen names.
If he cant find that many, he holds cash. Currently, its about 30% of assets, down from 40% at the beginning of the year. The fund bought heavily when the market was depressed in February and March, then stopped when prices surged higher. The window of opportunity opened in the first quarter and its temporarily closed, Boyar says.
Low volatility
Boyar doesnt always hold so much cash, but the volatility of the depressed stocks he owns is so low that the fund consistently behaves as if he kept a fifth of its assets in a money market fund.
A mutual-fund analysis firm, Zephyr Associates, says Boyar Fund has the characteristics of a portfolio representing a 45% weighting of the Russell 1000 Value Index ($RLV.X), 21% cash and 17% each of Russell 1000 Growth ($RLG.X) and Russell 2000 Value ($RUJ.X).
If you had owned this mix over the life of the fund, however, it would have delivered annualized returns more than five percentage points less than the funds 7.2% return since inception. Sometimes active management beats indexing, and Boyar is doing it.
Zephyrs analysis is based on how the fund behaved, not how it was actually constructed. But it accurately captures Boyars eclectic style, from his indifference to market cap to his unwillingness to invest when he cant find anything to buy. Being fully invested is sometimes a sin -- mea culpa, mea culpa, for I was so myself throughout the bear market, to my regret.
What they're buying now
The power of Sears: One of Boyars recent acquisitions was Sears Roebuck (S, news, msgs), which was trading for less than $22 when he bought it in February and has since nearly doubled. The manager says that when retail analysts were panning the stock six months ago, they overlooked the power of Sears financial unit.
Goofy about Disney: Boyar Value has been adding to its stake in Walt Disney (DIS, news, msgs). The market blames management for the companys lagging return on assets, but Boyar attributes it to the weak global economy. More importantly, he says, what would an acquirer pay for this business? More often than not, value wins out.
At the time of publication, Timothy Middleton didnt own any securities mentioned in this article.
|
