BOSTON (TheStreet) -- The most experienced mutual fund managers with the best 10-year performance records, including Bruce Berkowitz and Charles Dreifus, are buying shares of beaten-down financial companies, media firms and commodities suppliers.
The veteran money managers, in their post for at least a decade, run mutual funds with average annual gains of 10% or better over 10 years, when the
S&P 500 Index
eked out a 1.4% advance per year. Their funds also carry Morningstar's highest rating of five stars, awarded for consistency, stability and acumen.
Of the 7,691 mutual funds for sale in the U.S., there are only six that meet that exacting criteria:
Allianz NFJ Small Cap Value
Royce Special Equity
Neuberger Berman Genesis
Perkins Mid-Cap Value
Judging from their portfolios, there is no common denominator to their performances, unlike many large-cap funds that load up on the same dozen or o stocks, which this year includes iPod and iPhone maker
and cloud-computing company
The winning funds' managers go their own way, but their portfolios show that they think the economy -- and the stock market -- is going to improve.
Several managers have boosted their stakes in insurance, equities-trading and banking companies, and one fund is betting big on media stocks, its manager expecting a pickup in advertising as the economy expands.
Other funds have maintained hefty allocations to raw materials, everything from salt to gold, which may be a mixed message. A bet on gold is seen as a defensive move, and none of these funds with gold-related stocks cut those allocations in the most recent reporting period. But several have increased their investments in companies that produce metals needed for industrial goods.
The six funds, their details and recent portfolio highlights follow:
fund, with $18 billion in assets, has a return of 21% this year and a 12% average annual return over the past 10 years. Its portfolio includes 12 bonds and 22 stocks, with 51% of fund assets in the top 10 holdings.
The financial-services sector is its main focus, with a 74% weighting.
In the reporting period that ended Aug. 31, the fund made the insurance conglomerate
a new holding and top position, at 7% of the fund's assets, by buying 29.3 million shares.
That stake has grown significantly since then, as Fairholme Capital, the parent of Fairholme fund, reported two weeks ago that it now holds almost 42 million shares, or 30% of AIG's stock that isn't owned by the U.S. government, making it the largest private investor in the firm.
AIG is up 75% this year, bringing its three-year performance to a loss of 95%. It traded recently at $54.13.
Bruce Berkowitz, who started the Fairholme fund in December 1999 and has been its chief manager since then, appears confident the worst is over at the troubled company. AIG threw out everything but the kitchen sink in its recent third quarter, writing down the value of all sorts of assets, including several businesses that it plans to sell, which resulted in a loss of $2.4 billion for the quarter. It also recently announced plans to recapitalize and pay down its government bailout loan.
Fairholme also raised its stake in investment-banking firm
by 28 million shares, to just over 30 million, or 5.2% of the fund, in its most recent reporting period.
Also among the fund's top 10 holdings are the bankers:
, at 5.4%, and
Bank of America
, both at 5.3%.
Perkins Mid-Cap Value Fund
is a $13 billion fund with a 13.4% return this year. Co-managers Thomas Perkins and Jeffrey Kautz have been at the helm since August 1998 and navigated the fund to a 10-year, 10.8% return, which puts it in the top 3% in its category, according to Morningstar.
Its highly diversified portfolio includes 162 stocks with none at a larger weighting of 1.3%. The financial-services sector makes up 23% of the fund and among the largest holdings are the insurance firms
and the asset-management firms
The fund almost doubled its State Street stake in the quarter ended Sept. 30, buying 2 million shares, which makes it its fifth-largest holding. State Street is one of the largest trust banks worldwide, combining banking, asset servicing and asset-management operations. Its shares have gained 4.4% this year, bringing its loss over the past three years to 42%.
The fund also initiated a new holding in the third quarter of
by buying 7 million shares. TD Ameritrade has evolved into a diversified retail equities trading and asset management firm via recent acquisitions. Its shares are down 3.4% this year.
In its top 10 holdings are the miners
Royce Special Equity
, a $2 billion fund, is up 20% this year. Charles Dreifus, its manager since 1998, has distinguished himself with a 12.7% annualized 10-year return, tying for the best return in the group featured in this article.
His portfolio appears to be in a defensive posture, given its 16% weighting to cash and no significant shifts in stock holdings in the third quarter.
Specialty chemical maker
( LZ) is the fund's largest stock holding, at 3.8%. It is up 52% this year.
Consumer goods, at 31%, is the fund's largest sector weighting. That's led by
National Presto Industries
, at 3.5% of the fund. A maker of household goods and small kitchen appliances, including the Salad Shooter and the Pizzazz Pizza Maker, National Presto has sliced and diced its way to a 28% return this year.
Perhaps representative of an expectation of an uptick in new building or in home improvements is the fund's 2.8% allocation to
. The company makes electrical components and products, as well as lighting for residential and commercial applications. It is up 32% this year, despite the dormant new housing- and commercial-construction markets.
Neuberger Berman Genesis Fund
, an $11 billion fund, is up 21% this year and has a 10-year annualized return of 11.4%. It has been managed by Judy Vale since 1994. She was joined by Bob D'Alelio in 1997. The fund targets undervalued growth companies with market capitalizations of less than $2 billion.
The fund's managers have, literally, a salt-of-the-earth investment approach as its second-largest stock, at 3% of the fund, is
, a miner of rock salt and magnesium chloride, used for road de-icing as well as in consumer and industrial applications. The company also mines sulfate of potash, used in fertilizer. There is growing demand for potash and a short supply, which has resulted in a wave of mergers and takeover battles in the industry. Shares are up 30% this year.
In the same vein, the fund has a 2.7% allocation to
Church and Dwight
, the world's leading producer of baking soda. Its shares are up 15% this year. Its products are sold under the Arm & Hammer brand, and its product line includes baking soda, toothpaste, cat litter and carpet cleaner.
The fund's largest holding, at 3%, is
, an international supplier of pumps, closures and aerosol valves to the personal care, fragrance/cosmetic, pharmaceutical, household, and food and beverage markets. Its shares are up 34% this year.
is a $3.3 billion fund with a 12.4% return this year, dead on to its pace of the past decade. It currently shows a penchant for media (20% of the fund) and soda-company stocks.
It is a highly focused fund, holding only 43 stocks with 55% of the fund's assets concentrated in its top 10 holdings.
The media conglomerate
, built by Rupert Murdoch, is by far the largest fund holding, at 9%. The fund added to its stake by buying 4.6 million shares in the third quarter, bringing its stake to 19.3 million, a bullish move by Yacktman since the company is dependent on advertising for much of its revenue. Its businesses include the Fox TV network, cable and satellite service providers, book publishers and a number of print publications, including The Wall Street Journal. Its shares are up 7% this year.
Yacktman also holds other media-related stocks including the cable-TV companies
, and the diversified
Yacktman also has a sweet tooth, as its second- and third-biggest stock holdings are
, at a 7.6% fund allocation, and
, at 7.1%.
Allianz NFJ Small Cap Value Fund
, with $7.4 billion in assets, is a highly diversified fund, given that it holds 136 stocks and only 19% of its assets are in the top 10 holdings.
It is up 23.7% this year and has a 10-year annualized return of 12.7%, tying for the best performance of the group. Ben Fischer has run the fund since its inception. It carries a 1.6% yield indicative of its investments in high-quality, dividend paying but, nevertheless, small-cap stocks.
The industrial-materials sector is its biggest industry weighting at 25% of the fund and the company remains bullish on it. In the reporting period ending Nov. 30, it added a new stock, at 1.1% of the fund, in
, which operates zinc and copper mines in northern Canada. Its shares are up 32% this year.
Other than that, there were almost no significant purchases or sales in the top 25 holdings in the reporting period ended Nov. 30.
Del Monte Foods
( DLM), a processor of fruits and vegetables and the maker of 9-Lives cat food, is the fund's largest stock holding at 1.4% of the fund, and also one of its top performers, returning 65% this year. It got a big boost in November after reports that private-equity firm KKR was interested in acquiring it.
is the fund's top performer, gaining 84% this year. It designs and makes a wide range of aircraft components and subsystems. It has been an aggressive acquirer of other companies in its industry over the past few years and is also benefiting from a cyclical uptick in aircraft overhauls and new production.