396 / 772
10
Warren Buffett is making
Precision Castparts
PCP
the biggest investment of his life with a
$37
billion
deal. Shares of the firm had been depressed because
it is partly dependent on the flagging energy indus-
try, though it has even greater exposure to the thriving
aerospace industry. Buffett is betting that energy
prices will come back at some point and Precision
Castparts will prove to be a bargain. He’s long made
investments in companies where short-term problems
make a company attractive to the long-term investor.
Want to invest like Buffett? All you have to do is pick
a beat-up fund that invests heavily in industrials
and energy. I looked for diversified Morningstar
500
funds with the most combined investments in those
sectors. Naturally, most have poor recent performance
because of their investments in those lagging sectors.
Delafield
DEFIX
has
38%
in industrials and
7%
in
energy. This fund, which has a Morningstar Analyst
Rating of Bronze, has suffered dismal performance
during the past five years, but perhaps there’s a
rebound in the offing. Dennis Delafield and Vince
Sellecchia have long bought unglamorous com-
panies attempting turnarounds, and they’ve done
quite well until recently when their sector biases
have hurt returns in a big way. Expectations for many
of their companies are beaten down, so it might
not take a lot to bring them back.
Lateef
LIMAX
doesn’t own any energy names, but it
has a huge
36%
investment in industrials. Because
it doesn’t have energy, performance has merely been
mediocre of late. The fund tends to focus a little
higher on the quality spectrum than Delafield, as it
has both industrials like
Westinghouse Air Brake
Technologies
WAB
alongside growth favorites like
GOOGL
and
FB
.
AMG Managers Skyline Special Equities
SKSEX
is
the rare outperformer on our list. Despite having
35%
in industrials and
2%
in energy, the fund is in the
top decile of its peer group for the past three- and
five-year periods. The Bronze-rated fund is closed to
new investors. Although the managers also seek
companies with depressed earnings, they are looking
for companies that can produce above-average
earnings growth. Thus, they are not going after the
most beat-up companies. As a result, they have
few holdings in the red and many more like
Avery
Dennison
AVY
, which is up
25%
this year.
Mairs & Power Growth
MPGFX
is a bit of a surprise
entry given its emphasis on steady growers. But many
are industrials such as
Honeywell
HON
,
3M
MMM
,
and
Graco
GGG
. In fact,
3
M and Graco shares are down
this year, and the fund’s returns reflect the challenges
of
2015
, even if it isn’t as hard-hit as Delafield. All
told, the fund has
32%
in industrials and
3%
in energy.
Lead manager Mark Henneman looks for well-run
companies that can grow at a steady clip. However,
he likes to get in on the cheap end and thus tends to
buy amid a downturn.
Royce Premier
RYPRX
is much more in the Delafield
mold. It owns deep-value names, and it has been
punished severely for it. So, this and Delafield prob-
ably would give you the most bang for your buck
should energy and deep-value industrials rebound,
but of course, they also have the greatest down-
side if the slide continues. Chuck Royce became sole
lead manager here when Whitney George exited
because of some bad bets on materials stocks. The
fund has
30%
in industrials and
5%
in energy. Royce
wants companies with clean balance sheets that are
also trading at a steep discount. It’s the latter part
that has gotten the fund into challenging situations,
as the market isn’t offering many great companies
at big discounts these days.
K
Taking a Hint From Warren Buffett
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to
find overlooked funds that may
be ready to rally.