Excelsior Expertise

12/09/2005 12:00 am EST


Walter Frank


"To serve our readers better, we are constantly searching for new funds to add to our database," notes Walter Frank. "Two such funds that we hope will prove to be true winners are international offerings from the Excelsior fund family." Here are his reviews.

"You may not be too familiar with Excelsior Funds, but you may well recognize the name of the funds’ advisor, US Trust. Since 1853, US Trust has been a leader in wealth management, and its investment expertise was available to only a select clientele. Their guiding principle was to invest in good companies, know them well, and hold for a long time. The result is a low portfolio turnover and a ‘tax-intelligent’ approach. US Trust created its Excelsior funds to makes its expertise available to all investors; its funds now offer a minimum initial investment of only $500.

"Excelsior International (UMINX) invests in Western Europe and the more developed nations in the Pacific Basin and Latin America. It may also invest in emerging markets to capitalize on special opportunities. However, the managers tread cautiously in emerging areas, venture there only if a firm’s growth and appreciation potential outweigh the risk of its location.

"The current fund manager, David Linehan, assumed control of the fund in 2002 and was joined by Donald Elefson and Reiner Trilsch in 2004. The managers use a bottom-up approach, searching out high quality companies they expect to experience sustainable earnings growth, and to benefit from global or regional economic trends, or promising technologies or products. The key, however, is that this potential has not yet been recognized by the broad market.

"In other words, the managers buy only when they deem valuations to be attractive. The focus on sustainable growth also means that they will only buy stocks they expect to hold for 18 to 24 months. And, as bottom-up investors, the stock selection process drives sector and country weightings. Prior to current management, the fund had struggled performance-wise for a number of years. But since Linehan took the helm, it has outperformed its category average.

"Excelsior Pacific/Asia (USPAX) is also managed by Linehan, and has its basic strategy in common with its International sibling. Linehan also uses a bottom-up approach here, focused on sustainable earnings growth. Sector and geographic weightings are still driven by stock selection. The main difference is that the geographic focus is on companies located in Asia and the Pacific Basin, including Australia, New Zealand, and India.

"But there are differences in how this fund is managed. Linehan also looks closely at cash flow growth, looking for growth that outpaces a firm’s industry peers. Also, this fund sports a more concentrated portfolio, featuring only about 50 of Linehan’s high-conviction stocks. Many of its peers have 100 or more holdings. And, he tends to find more mid- and small-cap stocks than his peers, a result of the focus on rapid cash flow growth. Within this fund, he currently favors Japan and recently boosted his exposure to the Japanese housing industry. He also notes that he expects a rotation out of Japanese financial stocks and into technology and has already moved the fund to a 20% exposure to information technology."

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