Editor s note: With the markets offering up a seemingly endless parade of surprises, investors are looking for mutual-fund managers who can handle anything thrown at them. In this special report, SmartMoney focuses on funds run by managers who have successfully navigated years worth of market euphoria and panic - and helped keep investors ahead. We highlight funds that specialize in five categories: large company stocks, foreign stocks, global investments, balanced investments and real estate.>
In the Yacktman household>, stretching the value of a dollar wasn t a virtue, it was a way of life. Don Yacktman, the patriarch of the family, took son Stephen and his six other children to KFC for dinner. But instead of ordering the all-inclusive value combination platters that the restaurant chain touted, the elder Yacktman would order each item separately one piece of fried chicken, one order of fries, one drink because Don calculated that he saved a nickel per meal.
Stephen Yacktman, 39, rolls his eyes at memories of his father s notorious penny-pinching ways. But when it comes to stock picking for the fund that the two of them manage, Stephen has adopted a similar strategy. Instead of paying less for chicken, the Yacktmans try to pay as little as they can for the stocks they like. That emphasis on value has helped their fund generate annual average returns of nearly 7 percent for the past five years, outperforming a majority of funds that focus on large U.S. stocks.
The fund s strategy is a mix of frugality and patience. The father-and-son team rifles through battered stocks to find the ones with solid business prospects and the ability to generate a lot of cash. We see what kind of return in the future we would get if we held it indefinitely, says Don Yacktman, 68. Paying close attention to price helped the fund sidestep the worst of the financial crisis. It also gave the Yacktmans the confidence to tilt the typically defensive fund aggressively in the throes of the crisis, with bets on retailers like Williams-Sonoma and Abercrombie & Fitch, as well as subprime auto lender Americredit. If people leave gold nuggets on the ground, we re not dummies, says the elder Yacktman of the opportunity. The moves paid off. The Yacktman Fund rose almost 60 percent in 2009.
But lately, the Yacktmans have been cashing in some of those gold nuggets, especially the retailers, and funneling that cash into the stable stocks the fund has long favored. Stephen says stocks like PepsiCo and Procter & Gamble are not only cheaper than they were in 2007 but also still growing. In a sense, the fund has come full circle, holding many of the same stocks now as three years ago. Indeed, the only new wrinkle for the Yacktmans is a large stake in media firms, such as News Corp. and Comcast. Stephen says that if the market were to rally another 30 percent, however, the fund would start selling stocks and hoarding cash.
The Yacktman fund doesn t move in tandem with the broad S&P 500 index as much as other large-company funds, according to Morningstar a fact the Yacktmans relish. But it also means their fund might lag behind its competitors when the broad market is on a tear. And with about half of its $1.5 billion in assets in its top 10 holdings, one wrong call can sting mightily. Still, the Yacktmans are happy sticking by their best ideas especially if everyone else thinks they re crazy. The difference between being determined or stubborn is if, at the end of the day, we are proven right, then we are determined, says the elder Yacktman.
Managers: Don and Stephen Yacktman
Assets: $1.5 billion
Expenses per $10,000: $95
Minimum investment: $2,500
5-Year avg. annual return: 6.6%
10-Year avg. annual return: 12.2%
Quick Take: Run by a father-and-son team, it focuses on out-of-favor stocks and holds them for the long haul.
Manager: William Danoff
Assets: $63.7 billion
Expenses per $10,000: $94
Minimum investment: $2,500
5-Year avg. annual return: 3.5%
10-Year avg. annual return: 2.6%
Quick Take: One of the biggest stock funds on the market, it concentrates
on large and midsize growth companies trading at reasonable prices.
Managers: Bruce Berkowitz and Charles Fernandez
Assets: $11.2 billion
Expenses per $10,000: $101
Minimum investment: $10,000
5-Year avg. annual return: 8.1%
10-Year avg. annual return: 13.6%
Quick Take: Looks for beaten down companies with strong upside potential and may invest heavily in a few names.
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