17
Morningstar FundInvestor
February 2
013
has shed stocks that have done well since purchase
and looked fairly valued, such as drugmaker
Roche Holding
ROG
and document-storage company
Iron Mountain
IRM
. As a result, the fund is more
concentrated in its top
10
than it was five years ago—
it keeps
74%
there versus
68%
in
2007
. Davis and
Feinberg contend most of those top holdings’ share
prices have not kept pace with their business and
earnings growth. They say
CVS
Caremark’s, American
Express’, and Costco’s owner earnings have grown
faster than their stocks have appreciated in the past
five years.
Bank of New York Mellon
’s
BK
owner
earnings have decreased over the same period, but its
share price is down a lot more, Davis and Feinberg
say, and the asset custodian is trading at low multi-
ples on depressed earnings that could get a jolt from
its money market and securities-lending businesses.
Recent new additions to the portfolio include property
casualty insurer
Markel
MKL
, which the managers
have held for at least
15
years in other portfolios, and
Google
GOOG
, which the managers also have owned
in Selected American for nearly six years. The fund
added Google in
2012
’s second quarter when antitrust
investigations and a poor earnings report weighed on
its shares. It struck Feinberg as a unique opportunity
to buy a dominant company. Davis and Feinberg don’t
view Google as a technology bellwether as much
as a media company. It is the biggest gatekeeper of
Internet content, and it continues to claim global
market share as the number of devices connected to
the Internet grows. It claims about two thirds of U.S.
and three fourths of overseas searches, they say.
That gives Google a big moat fortifying its strong oper-
ating margins and returns on invested capital.
They also like the demand-driven advertising model
that allows advertisers to see the return on invest-
ment of their advertising dollars. Davis and Feinberg
worry some about the company’s capital allocation
discipline but are encouraged that one of the founders,
Larry Page, is in charge. It was hard to pass up
such a dominant company trading at a midteens
forward P/E, Feinberg says.
Google has been a modest contributor to the fund’s
improved returns in recent months. Only time will tell
for sure if it and other picks help it recharge the
fund’s resurgence from the market’s low point. Davis
is confident the fund, which has gained
27
.
5%
annualized from March
9
,
2009
, through Jan.
31
,
2013
,
compared with
24
.
9%
for the S
&
P
500
and
23
.
0%
for the average large-blend fund, can regain its stride.
“We have no doubt at all that we are going to get
through this,” he said earlier this year. “We are going
to be here for the other side whenever it gets here.”
Clipper’s stock-picking woes have taken it down a
peg. It still has a decent shot at outperforming,
though, because of its experienced and shareholder-
friendly management, reasonable expenses,
and consistent and highly active approach.
œ
Contact Dan Culloton at
The FundInvestor Focused 10
Fund Name
Category
Manager Name (Tenure)
5-Yr Total
Return %
5-Yr Cat
Rank %
# of Stock
Holdings
Turn-
over%
Expense
Ratio Top Three Holdings
Brown Capital Mgmt BCSIX
Small Growth Management Team (20.58)
11.50
1
37
21.00
1.35 Tyler Tech, Medidata, NIC
Clipper CFIMX
Large Blend
Davis; Feinberg (7.08)
0.39
91
27
15.00
0.75 American Express, Costco, Berkshire Hathaway
Fairholme
FAIRX
Large Value
Berkowitz (13.17)
3.78
24
11
43.95
1.02 AIG, Sears, Bank of America
FMI Large Cap FMIHX
Large Blend
Management Team (11.17)
6.03
5
28
21.00
0.96 Bank of New York, 3M, Berkshire Hathaway
FPA Crescent FPACX
Mod Allocation Romick (19.67)
6.77
2
44
32.00
1.25 Aon, CVS, Microsoft
Jensen Quality Growth JENSX
Large Growth Management Team (20.08)
5.42
23
29
15.80
0.91 Oracle, Pepsico, P&G
Longleaf Partners LLPFX
Large Blend
Hawkins; Cates (25.83)
3.46
43
23
23.55
0.91 Loews, Chesapeake, Aon
Mairs & Power Growth MPGFX
Large Blend
Frels; Henneman (13.17)
7.00
2
45
2.78
0.72 Valspar, 3M, Pentair
Oakmark Select OAKLX
Large Blend
Nygren (16.25)
8.00
2
20
32.00
1.05 TRW, Discovery, Bank of America
Sequoia SEQUX
Large Blend
Goldfarb; Poppe (14.67)
6.92
2
45
3.00
1.03 Valeant, TJX, Berkshire Hathaway
We shine the spotlight on 10 funds from the FundInvestor 500 that follow a focused, low-turnover strategy. Data through Jan. 31, 2013.
