Last month we purchased Fidelity Limited Term Bond (FJRLX) in our model portfolio. Part of our strat...
04/13/2015 9:00 am EST
While we normally focus on individual stocks, from time to time we like to look at mutual funds that focus on turnarounds, explains George Putnam, editor of The Turnaround Letter.
The scarcity of turnaround-oriented funds just proves our assertion that turnarounds represent an inefficient, and therefore, potentially very profitable niche in the securities markets. Here’s a look at eight such funds.
AMG Managers Skyline Special Equities (SKSEX) had a subpar 2014 that wasn’t consistent with the fund’s superior long-term performance.
The current managers, who’ve been with the fund since 2001, look for companies trading at a discount due to company-specific problems that have led Wall Street to avoid the stocks. The portfolio is focused on small- and micro-cap stocks.
Ariel Appreciation Investor (CAAPX) is led by John Rogers, Jr., who founded Ariel Investments in 1983. He’s well-known for favoring out-of-favor stocks.
The fund emphasizes the Financial Services, Consumer Cyclical and Industrial sectors, and is heavily weighted toward mid- to large-cap stocks.
Fairholme (FAIRX) is headed by Bruce Berkowitz, a well respected manager who is known for concentrated bets, which are often in turnaround situations.
Such concentrated bets hurt last year’s performance, but since inception, he has built a strong record. He definitely eats his own cooking, personally owning about 5.5 million shares of the fund.
Fidelity Event Driven Opportunities (FARNX) had a decent first year of existence, with solid performance that has continued so far in 2015.
The “event” in the name refers to the fund’s ability to look for specific fundamental changes such as a corporate reorganization, new management or even bankruptcy. Small- and micro-cap stocks account for over 56% of the portfolio.
GoodHaven (GOODX) belied its name with poor results in 2014. Nonetheless, it has a good longer-term record. The fund has what one mutual fund analyst called “a deeply contrarian fallen angels strategy.”
The fund’s two co-managers have been doing this for a long time (they worked at Fairholme before starting GoodHaven), and we expect performance to bounce back. The portfolio is rather concentrated, and with a few exceptions, is mostly focused on mid- and small-cap stocks.
Hotchkis & Wiley Value Opportunity (HWAAX) seeks value opportunities created by “irrational investor behavior.” The fund often buys stocks that are shunned by Wall Street.
American International Group is the fund’s largest holding, but financials Bank of America and Citigroup (C) are among its top holdings. The fund is rather well diversified across market capitalization.
Janus Contrarian Fund (JCNAX) is diversified across market caps, but has only 50 names in the portfolio and one half of the portfolio is in the top ten holdings.
The managers begin by canvassing a universe of overlooked stocks and then look for a catalyst that might change the dynamics, such as a new management team.
Keeley Small-Mid Cap Value (KSMVX) focuses on spin-offs, balance sheet restructurings, and other event-driven catalysts. The fund’s small- and mid-cap focus hurt performance in 2014 as smaller stocks underperformed the S&P 500, but longer-term results have been good.
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