Meet the Family: A Mixed Bag of Funds at Gabelli Asset Management

The strategy at Gabelli Asset Management defies easy definition, as does its family of funds.

Meet the Family

Gabelli Asset Management

Assets Under Management: $12.6 billion in retail mutual funds; $11.4 in separate accounts

Percentile Rank of Average Fund Over Three Years (1=Best, 100=Worst): 23.9% (excluding Comstock and Mathers funds)

Family's Top Three Stock Holdings: Mellon Financial (MEL Quote), State Street (STT Quote), Tellabs (TLAB Quote)

Minimum Initial Investment: $1,000

Meet the Family Q&A: Gabelli Growth's Howard Ward

Web site: www.gabelli.com

Phone: [phone]

Though founder Mario Gabelli incorporates value principles to pick stocks, his funds tend to have big stakes in relatively volatile issues like telecom and media. That helps explain why all but a few of the Gabelli funds lost money last year, at a time when funds with stodgier holdings shone.

Not that Gabelli was complaining; some of those bets have helped drive his (GABVX Quote)Value fund to beat the S&P for three- and five-year periods. Investors have rewarded the funds by pumping in money, even during last year's downturn, when Gabelli enjoyed net inflows of $1.4 billion.

In this Meet the Family look at Gabelli, the bottom line is: While the fund family has its share of black sheep, investors would be more than happy betting on the firm's proven winners.

"All things considered, how do we feel about the media and telecommunications that have rewarded us so generously over the past several years, but performed so poorly in 2000? Just fine, thank you," wrote Mario Gabelli in a third-quarter report. The silver lining, he added, was that the market carnage has knocked down prices on a lot of stocks.

Investors should be aware of what they're buying at Gabelli. Though most managers at the firm use a stockpicking model based on value pioneers Graham and Dodd, the funds aren't stocked with the plain-Jane holdings usually associated with value investing. Mario Gabelli himself has been a long-time bull on communications-oriented stocks. (The upside of his persistence is that his funds tend to have reasonable rates of turnover, though it varies by fund category.)

Gabelli Gems Here's a sampling of some of the Gabelli fund family's best offerings
Fund	Fund Category	Net Assets ($ Mil)	1-Yr. Return	3-Yr. Return	3-Yr. % Rank in Cat. (1=Best, 100=Worst)	Expenses
(GABGX Quote)Gabelli Growth	Large Blend	$3,835	-3.10	20.67	4	1.37%
(GICPX Quote)Gabelli Global Growth	World	285	-31.11	22.89	8	1.63
(GABVX Quote)Gabelli Value	Midcap Blend	1,158	3.53	17.07	13	1.38
(GABAX Quote)Gabelli Asset	Midcap Blend	1,909	5.25	15.05	21	1.37
(GIGRX Quote)Gabelli International Growth	Foreign	67	-18.01	11.47	29	1.98
Source: Morningstar.

A couple of other caveats: Gabelli doesn't offer any bargains in terms of operating expenses, given that many of the funds have sizable asset bases. (Some fund companies help out investors by knocking down expenses as their assets grow.) A big chunk of those expenses goes toward the salary of Gabelli himself, who founded the firm in 1977. Besides collecting various management fees, he pockets 20% of the pretax profits of each of the company's operating divisions. His paycheck for fiscal 1999? A monster-sized $42 million.

Also, investors shouldn't jump right into the three funds recently acquired by Gabelli. (MATRX Quote)Gabelli Mathers recently made an appearance on our list of 10-year loser funds. (DRCVX Quote)Comstock Partners Capital Value and (CPFAX Quote)Comstock Partners Strategy Fund look equally lame. The family may be able to turn things around, but for surer bets, there are better options at Gabelli.

In fact, several of Gabelli's funds shape up as excellent long-term investments. The leading contender is (GABGX Quote)Gabelli Growth, managed by Howard Ward. (Check out our Q&A with Ward.) It ranks in the top 3% of its peers over three years and the top 2% over five years. Though it's classified as a blend fund, it's managed to score growth-like returns without taking on a lot of risk.

It's notable that Ward parts ways with his colleagues on a couple of important points. He looks more kindly on technology than Mario Gabelli, though both have stakes in media and telecom, and he also employs a different stockpicking approach, scouting for companies that look cheap relative to their earnings growth prospects.

Another strong fund contender is (GICPX Quote)Gabelli Global Growth, which finally bowed to marketing realities last year and changed its name from the Couch Potato Fund. Note, though, that Global Growth is not exactly the most diversified of funds. Run by Mario's son Marc, it's more of a sector play on telecom and media stocks, with hefty weightings in wireless communications (22.5% of assets), telecom (22.4%), entertainment (10.9%) and cable (7.2%).

It shouldn't come as a huge surprise that this fund got waxed in 2000, losing 37.5% of assets. Its one-year record ranks it in the bottom 1% of world stock funds. But over three- and five-year periods, it ranks in the top 10% and 1%, respectively, of its peers. If you have patience, an interest in overseas markets and lots of faith in communications stocks, it might be a candidate for closer examination.

Of the six funds managed or co-managed by Mario Gabelli himself, two boast records that rank them within at least the top 20% of their peers over both three- and five-year periods. Both also happen to have fairly good tax-efficiency ratios, meaning they don't lose a lot of their gains to taxes.

The first is Gabelli Value, a mid-cap blend fund that's the oldest in the family. Unfortunately, it's also the only load fund, with a sales charge of 5.5%. Although it calls itself a value fund, the Gabelli Web site slots it under the category of aggressive growth. As of the fourth quarter, Gabelli Value had around 43% of its assets concentrated in the top-10 holdings, and more than a third of its assets were in communications-related industries, like entertainment and publishing. Still, Morningstar classifies the fund's risk as low for its category. With a heavy weighting in telecom stocks, it's ridden some early gains in tech this year, though in 2000 it finished down about 8%.

Investors who want something a little tamer, and without the load, might consider (GABAX Quote)Gabelli Asset, another mid-cap fund headed up by Mario. Its broad diversification across 376 stocks helped it avoid big losses last year, when it finished down 2.4%. A nice plus: Turnover is only 32%, meaning the fund sells only about a third of its holdings in a given year. That's about half the turnover of the Value fund.

One more fund that deserves a mention is tiny (GIGRX Quote)Gabelli International Growth. The $67 million fund lost 16.5% last year, but over the long term it's established a solid record. It ranks in the top 14% of its peers for a five-year period, with annualized returns of 13.44%. On the downside, its operating expenses are on the high end, at 1.98% compared with the average of 1.87% for all international funds.

Overall, expenses are somewhat of a drawback for Gabelli funds, and investors might want to steer clear of the flagship Value fund based on its load. On the plus side, Gabelli Growth's long-term record speaks for itself. And investors who remain bullish on telecom and media stocks could do worse than take a closer look at Gabelli Global Growth, if they have a stomach for risk, or the calmer Gabelli Asset, if they don't.

Family Favorites These are the 10 most widely held stocks in the Gabelli family
Stock	52-Week Return
Mellon Financial (MEL Quote)	44.5
State Street (STT Quote)	39.2
Tellabs (TLAB Quote)	10.7
Pfizer (PFE Quote)	25.9
Telephone and Data Systems (TDS Quote)	-8.2
Viacom (VIA Quote)	-6.9%
Texas Instruments (TXN Quote)	-22.5
Marsh & McClennan (MMC Quote)	10.7
Cablevision (CVC Quote)	9.7
Qualcomm (QCOM Quote)	-26.7
Analog Devices (ADI Quote)	14.7
Source: Morningstar and Marketguide.com