Jensen FundThe fact that the ( JENSX) Jensen fund has returned 13.07% annually over the past 10 years vs. 11.33% for the S&P 500 is not what makes Jensen an old-school fund. Nor is it because the fund's five principals have a combined 150-years-plus of investing experience. No, what establishes Jensen as perhaps the quintessential "old school" fund is that its managers make their shareholders money the old-fashioned way: They focus on earnings. Or, more specifically, earnings divided by shareholders' equity, or return on equity. Jensen's team screens nearly 10,000 publicly traded companies for those that have delivered an ROE of at least 15% in each of the past 10 years. The resulting 100 or so names are then given intrinsic values, according to their future free cash flows. Finally, Jensen's managers select the 20 to 30 companies trading at least 40% below their calculated intrinsic values. "When you can maintain that level of ROE for 10 years or more it shows that a company has a sustainable competitive advantage," says Jensen portfolio manager Robert Millen.
Hodges FundA lot has changed since Don Hodges began his career in the investment industry more than 40 years ago, most notably the emergence of technology. But instead of changing styles with the times, Hodges brought his son Craig in to help him run the ( HDPMX) Hodges fund in 1992. "He brings a fresh approach to my traditional approach. For example, he brings me into new technologies that I might not be aware of," says the more senior of the two Hodges. "And it's not like he was ever really a rookie anyway, we've talked with each other about stocks from the time he was a little guy." The old school/new school, father/son combination has been beating the market for a long time and there's no sense that they intend to stop now. The Hodges fund's 10-year annualized return of 13.02% trumps the S&P 500 by 1.2% and year-to-date the fund is ahead of the benchmark index by 2.11%. Over the last three-year and five-year periods, the fund has beaten the index by 13.49% and 4.09%, respectively.
Weitz Value FundSome fund managers are obligated to be fully invested, therefore it's tough to blame them for buying at the top of the market when they are only meeting the requirements spelled out in the fund's prospectus. Other managers might not be required to have 100% of their assets in the market, but still rush to shop for stocks faster than a teenager holding both his weekly allowance and the keys to the family car. And then there's Wally Weitz who, like Orson Welles in his TV-commercial approach to wine buying, will buy no stock before its time. The ( WVALX) Weitz Value fund is currently sitting on 28% cash, but long-term investors are smart enough to realize that this is no money market fund. The fund's 10-year annual return is 16.36%, besting the S&P by 4.54%. The fund is also a winner in terms of cost, charging a low 1.11% for its services. When Weitz finally pulls the trigger on a stock, it is only when his discounted cash flow model proves it to be trading at a price far lower than what he says a "rational buyer" would pay for 100% of the company. Additional requirements include pricing power, an easy-to-understand business (the fund holds few if any high-tech stocks) and an "honest, intelligent management who treats shareholders as partners in the business, rather than necessary evils." "The beauty of this approach is that it depends on common sense and patience rather than special sources of information or predictions of essentially unpredictable future events," says Weitz. The fund currently has a concentration in media and financial stocks with Liberty Media ( L) being the top holding at 5.3%. On the financial side, both Fannie Mae ( FNM) and Freddie Mac ( FRE) are well represented in the fund.
|Old School Funds |
Strong 10-Year Track Records
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|3 Year||5 Year||10 Year|
|Source: Morningstar (Annual returns through 7/7/04)|