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Yacktman Focused fund: Value investing paying off for this focused fund

While there's no shortage of value stocks to pick from in this market, most value portfolio managers have found their fund's performance in the dumps right along with growth fund managers. But here's a value fund, managed by someone whose name you're likely to be familiar with, that's currently outshining most of its peers.

Don Yacktman made a name for himself in the early 1990s when his style of value investing meant big-time returns for his fund shareholders. Then, as in everything else in life ---and particularly market prices---things changed and value investing went from hot to forgetaboutit.

Today, Yacktman shows us once again that value investing can pay off: His Yacktman Focused fund (800-525-8258), a mid-cap value fund, got Lipper's top billing for the year ending September 30.

Look closer at the fund's performance in the five years it's been around, and you'll find only one down year---that was in 1999 when it was off 22 percent. Since then, the fund's been moving ahead and by the close of the third quarter this year, its year-to-date return was up a hair, 0.64 percent. That's not too shabby when you consider performance of the average mid-cap value fund was down nearly 24 percent. Then came October--when the market smiled on value funds---and now, November. And, at the close of business on November 8, the Yacktman fund was up 10.62 percent while the average fund in its category was down about 20 percent.

With about 25 names in its portfolio, here's more about the Yacktman Focused fund (YAFFX) from its portfolio manager, Don Yacktman:

Q: Most value funds are down somewhere around 20 percent for the year and your fund is up handsomely. What's your secret?

A: We just try to be logical. We try to buy profitable businesses, businesses that have high returns on assets, low prices and managements that do a good job at capital allocations. And, you can question that but that's the basic thesis on which we operate.

The other thing is to notice what we don't own. If you were to put a matrix out there of all businesses and on once side had capital intensity as measured by fixed assets and on the other side economic sensitivity or cyclicality, what you'll notice is we don't have anything in that highly capital intensive area that's highly cyclical.

Q: Give me an example.

A: Autos, airlines and things like that.

We also don't invest in capital goods kinds of companies so that keeps us out of a lot of technology businesses that are shooting stars or Roman candles. We do participate in things that utilize technology---and have an investing in AOL and First Data---but our biggest four holdings (Tyco, Lancaster Colony, Liberty Media and Quest Capital Funding bonds) tend to be very concentrated.

Q: How often to you turn the portfolio over?

A: It's not unusual for us to hold a stock for years. What happens is sometimes they just get overpriced and then we sell. For instance, four years ago we bought Dentsply, which is the biggest provider of products to dentists. It went from being undervalued to being what we thought relatively fully valued so we recently sold it. There was nothing wrong with the company, it was just strictly a price decision.

Q: For those who are nervous about getting into the market today, any words of advice?

A: I think people should look at (an investment) strategy and find one that makes sense for them. A lot of this business is just digging in, looking at the numbers and doing analysis. If you're good at that, that's fine. And if you aren't, then turn it over to somebody who you have confidence in. But have a strategy that you can stay with.

Too many people are too very short-term oriented. In '99 we lost a lot of assets because we had a terrible period. Everybody thought we were just nuts and all of the speculators were making money. That's when we have trouble----when the market is real frothy and way overpriced. And, usually after a bad period we have an even better period. Now, all of a sudden, everybody is excited about our funds and putting money in them. It's a manic-depressive business and a humbling one because you are never right: You never buy at the bottom, you never sell at the top, it's just a matter of degrees as to how wrong you're going to be.

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Keep in mind, because of their nature, focused funds may be riskier and have more price volatility than other types of equity funds.


Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.

To read more articles, please visit the column archive.

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