16
Clipper Fund
’s
CFIMX
long comeback from the finan-
cial crisis continues in fits and starts, but it does
continue. The fund is off to a good start in
2013
, but
the year is young, and its record since current man-
agers Chris Davis and Ken Feinberg came on board in
early
2006
has not been up to the reputation and
standard they have set at other funds. The fund was
up about
5
.
5%
for the year to date through January
2013
, ahead of the S
&
P
500
and most large-blend
funds. Since January
2006
, however, the fund has
been inconsistent, finishing three calendar years
in the category’s bottom fourth and posting an anemic
1
.
5%
annualized gain versus
4
.
4%
for the S
&
P
500
and
3
.
7%
for its average peer through January
2013
.
Investment styles and strategies go in and out of
favor, and investors who stick with this fund can be
rewarded over the long term. Davis and Feinberg
still apply a high-conviction, value-leaning, focused
brand of investing that has and will continue to
produce a portfolio that can look out of step with its
benchmark or typical peer from time to time but
has delivered strong results over the long term at a
separate account run in the same style.
Still, the fund has suffered self-inflicted wounds
that cannot be explained solely by the whims of
market fashion. Davis and Feinberg stuck with
Amer
ican International Group
AIG
, for example, until
the government plucked it from oblivion even though
they harbored doubts about its executive’s ability
to manage the insurer’s risks. No loss weighs more
heavily on this fund’s record during Davis and
Feinberg’s tenure.
AIG
’s collapse virtually wipes out
the gains of the funds’ three biggest positive contri-
butors since
2006
—
Costco Wholesale
COST
,
Berkshire Hathaway
BRK
.A, and
CVS Caremark
CVS
, according to a Morningstar attribution analysis.
AIG
isn’t all that has ailed this fund, though. More
recently, troubled information technology giant
Hewlett-Packard
HPQ
and oil exploration and pro-
duction company
Canadian Natural Resources
CNQ
have detracted from returns. The fund has been
hurt by what it hasn’t done, too. Many of its peers
have benefited from owning
Apple
AAPL
in recent
years, but Davis and Feinberg took a pass on the
computer and telecommunication device company, in
part because they believe its profitability will
erode as it becomes more of a consumer electronics
maker—a position by which they still stand.
Davis and Feinberg clearly have not been at the top of
their game in recent years, but they can do better.
They are seasoned investors whose long-term records
at
Selected American
SLADX
,
Davis Financial
RPFGX
, and the Davis Concentrated Equity separate
account remain strong. Despite some suspect stock-
picking in recent years, their process has merit. Davis
and Feinberg still use fundamental analysis to get
to know companies’ managers, business models, bal-
ance sheets, and capital allocation skills and try
to buy the ones they like at a discount to their “owner
earnings” or cash flow adjusted for factors like
capital spending, pension obligations, stock options,
and depreciation.
It is a Buffettesque, good-companies-at-fair-prices
tactic that has led the managers to anchor the fund
around a handful of stocks with significant defen-
sible competitive advantages, such as
American
Express
AXP
and
Microsoft
MSFT
. This fund’s
smaller asset base also has allowed the managers to
add more esoteric and illiquid holdings here than
in their larger funds. They, for example, took a signifi-
cant position in distressed investing firm
Oaktree
Capital Group
OAK
before it went public last year
and also have invested in Brazilian credit card firm
Cielo and drugmaker Brazil Pharma. This gives the
portfolio a mix of the stolid and the opportunistic.
The fund has seen negative cash flows in recent years,
but the managers have tried to use them to fund
owners’ advantage by trimming or selling their least
favorite ideas to fund redemptions or purchases
of other stocks. In the past year, for example, the fund
The Case for Clipper
The FundInvestor Focused 10
|
Dan Culloton
