NEW YORK ( TheStreet) - When bond giant PIMCO recently started its first stock fund -- PIMCO Equity Series Pathfinder Fund ( PTHDX) -- the company hired portfolio managers who had run Mutual Series funds, Anne Gudefin and Charles Lahr. Recruiting the veteran managers seemed like a logical move.

Mutual Series has long ranked as a top performer, and several of its veterans have gone on to manage funds at other companies. Mutual Series alumni include David Winters, now portfolio manager of Wintergreen ( WGRNX), and David Marcus and Jae Chung of Evermore Global Value ( EVGBX). Can the alumni match the record of their former employer? Perhaps. All the managers practice a similar brand of deep-value investing, and they all hold some of the same stocks.

The strategy was developed by Max Heine who started Mutual Shares ( TESIX) in 1949. Heine made his first big scores by buying distressed railroads. The stocks intrigued him because he figured that the land and equipment were worth more than the value of the depressed shares. In 1988, Heine died and passed control to his protégé Michael Price.

Price refined the company's approach, seeking to build broadly diversified portfolios that could protect shareholders in downturns. To accomplish the goal, Mutual Series included elements few mutual funds had ever tried. Besides buying undervalued stocks, Price bought distressed debt, bonds that were close to collapse. He also invested in merger arbitrage, buying stocks of companies that were about to be taken over. When the fund manager couldn't find undervalued investments, he held cash and waited for better times.

Several of Price's strategies had an important characteristic in common: They did not necessarily track each other or the stock market. Consider the investments in distressed companies. If a troubled company emerged from bankruptcy, the prices of its stocks and bonds could skyrocket, even when the S&P 500 was falling. By holding such uncorrelated investments, Mutual Series hoped to build portfolios that could be resilient.

In 1996, Price sold Mutual Series to Franklin Templeton, and he later left the business. But disciples of Price and Heine continue to the run the funds, and they follow the same strategy. Most often the approach has worked.

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