Longleaf Partners Fund to Reopen, but Look Before You Leap

Updated from 9:40 am. EST

Southeastern Asset Management's (LLPFX Quote)Longleaf Partners, a $3.6 billion value fund with a sterling reputation and long-term record, will reopen to new investors Feb. 1. But investors should look closely at the fund's recent performance before piling in.

Its 15.8% average annual return over the past 10 years beats most of its mid-cap peers, according to fund-tracker Morningstar. But more recently, the fund has struggled, trailing the S&P 500 index each calendar year since 1995. Last year, the fund's paltry 2.2% return trailed its average mid-cap peer by nearly 15 percentage points.

The fund's weakness in recent years is probably due to its value approach, which has kept market-leading technology stocks out of the portfolio. But its more-than-14% bet on Waste Management (WMI Quote), which dropped more than 63% last year, may be most responsible for its modest 1999 return. According to its most recent shareholder report, about half the fund's 15.3% loss in the third quarter was attributable to Waste Management.

Last year's trouble is starting to tarnish the fund's longer-term record. It now lags its average peer over the past one-, three-, and five-year periods.

If value stocks come back into favor, the fund could take off. But prospective investors should keep in mind that the fund isn't shy about taking big bets. On Sept. 30 more than 66% of the fund's assets were invested in its top-10 holdings. The fund owns 5% of Waste Management's shares, more than any other mutual fund, according to Morningstar.

Started in 1987, the fund was closed from September 1995 through October 1998, and closed again in June 1999, when the fund's cash level was 30%. By Sept. 30, the fund's cash level was down to around 6%, according to Morningstar.

Although asset levels are falling at many value funds due to sagging performance, investments into the Longleaf fund have outpaced redemptions over the past five years. The fund was more than $400 million in the black last year through Nov. 30, according to the most recent data from Boston fund-watcher Financial Research.

O. Mason Hawkins has run the fund since its inception, adding co-managers G. Staley Cates in 1994 and John Buford last year.

The no-load fund requires a hefty $10,000 minimum investment, but its 0.9% expense ratio is well below average.

Southeastern Asset Management didn't immediately return a call for comment.