Three Low-Key Fund Stars

03/18/2008 12:00 am EST

Focus: FUNDS

Thurman Smith

Editor, Equity Fund Outlook

Thurman Smith, editor of Equity Fund Outlook, finds three funds that have good long-term track records and yet have been somewhat under the radar.

It’s a family affair at Baltimore-based, market-risk Croft Value (CLVFX), where three Crofts run an efficient fund that has delivered an annualized return of 17.0% over the last five years, almost twice as much as the market with just old-fashioned fundamental research.

Lead manager Kent Croft seeks to buy stocks at “80 cents on the dollar” and hold them for three to five years. Any size firm or sector can be considered, including industries that aren’t traditionally associated with value investing, such as technology and telecom.

The fund was launched in 1995 and has about $31 million in assets. The stock selection style is growth-at-a-reasonable-price (blend). Sector weightings relative to a benchmark are not an issue. The managers do consider themes and get their investment ideas from an array of sources, including institutional sales people, market strategists, other fund managers, and sell-side analysts. Low portfolio turnover and tax impact are pluses, as is an expense ratio capped at 1.5%. That’s not cheap, but the small size ($31 million) compensates.

Banks are not usually known for running top-performing funds, but Indiana-based 1st Source offers 1st Source Monogram Income Equity (FMIEX), an efficient, market-risk, equity-income vehicle that beat the Standard & Poor’s 500 in each of the last eight of its eleven full calendar years.

Over the last five years it has returned the annual equivalent of 15.9% vs. only 11.7% for the market. Its manager, Ralph Shive, has been in charge since inception. He looks for value stocks of firms with some unique advantage. Since it pays dividends monthly, it might be useful for a taxable investor looking for income and taking dividends in cash. Despite the focus on income, Income Equity’s Tax Impact is below 1.0.

The stated policy at USA Global All American Equity (GBTFX) is investing in stocks of domestic growth companies. However, 17% of assets are foreign firms with some business connection with the US or with 50% or more of their business in the US. Over the last 5.1 years, its annualized return of 13.9% compares favorably with the 11.7% return of the market, but its risk exposure of 14.3 and tax impact of 4.3 limit its use to aggressive tax-advantaged accounts.

The management team, headed by Frank Holmes, searches for blue-chip companies exhibiting strong growth in revenue and earnings, and uses a proprietary earnings growth model that reviews sectors first, then subgroups within those sectors and, finally, individual stocks. They start by assessing historical, current, and forecasted earnings trends, then purchasing stocks with sustainable earnings growth at compelling values.

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