VALUE ADDED


A Great Fund

Steven Goldberg

Wintergreen fund is better than 99% of hedge funds -- and it's relatively low risk. But you'll pay a price for its performance.



I got excited about Wintergreen fund even before its launch more than 18 months ago. That's why I featured the fund in a piece I wrote for Kiplinger's Personal Finance magazine on promising new funds.

After interviewing fund manager David Winters last week and looking at what Wintergreen (symbol WGRNX) has been doing, I think I got one right: This fund, which invests all over the globe, has all the hallmarks of a great one. Just for starters, it has returned 24% over the past year through April 12.

At 45, Winters is at the peak of his game. He was schooled by the best, spending more than 20 years working at the Mutual Series funds and rising to chief investment officer before leaving to start his own shop. Winters spent a number of years learning from star value manager Michael Price, who emphasized keeping risk low. Risk at Wintergreen should be low, although the fund will probably be more volatile than the Mutual Series products.

Winters plainly loves his work -- digging into companies to find values that others have overlooked. What's more, at Wintergreen, he's much freer to make big bets on the stocks he likes best than he was as at Mutual Series, which is part of the Franklin Templeton group. Wintergreen is his baby. He doesn't have anyone to report to except his shareholders.

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In the hands of a less-skilled manager, Wintergreen could be scary. One-quarter of assets are in just four stocks: Japan Tobacco, Consolidated-Tomoka Land (CTO), Jardine Matheson Holdings and Imperial Tobacco Group (ITY).

Winters has a finely honed investment discipline. First and foremost, he's a value investor. "You want to buy something as cheaply as you can," he says. But he looks for growing businesses, too. "I want to own businesses with good underlying and improving economics." He also cares a lot about who's running a company.

Winters displays a deep knowledge of the companies in which he invests. He can talk in exquisite detail about his largest holding, a 9%-plus position in Japan Tobacco, as well as about the smallest of his 41 positions, a 1% holding in Martin Marietta Materials (MLM).

He pays no attention to any index or sector weighting in choosing stocks. There are certain industries he favors because he likes their economics: most notably tobacco and gambling. According to Morningstar, Wintergreen has 71% of its assets in large companies, 13% in midsize firms and the rest in small companies.

On average, Wintergreen's stocks have a market value of $13 billion and fit between the growth and value categories. But this isn't a fund that you can easily put into a portfolio. Treat it is an outlier -- a fund that will buy the best stocks that Winters and his two globe-trotting analysts can find. Winters invests occasionally in the shares of already announced takeover candidates, hoping to benefit from the final few pennies or dollars of appreciation as the deal reaches consummation. And in certain environments -- not today's -- he will also buy distressed securities.

Only one-third of the stocks are U.S.- based. "The best deals are outside the U.S. -- the really special situations." What's more, he's not hedging his currency exposure. That means the fund will do well so long as the dollar continues to fall, which Winters believes is likely to continue to happen because of the large U.S. trade and budget deficits.

Wintergreen, which requires an initial minimum investment of $10,000, has less than $750 million in assets. But Winters is also managing more than that in private partnerships for wealthy investors. Altogether, he's running $1.6 billion -- all in essentially the same style. That's a relatively small amount and is yet another reason that makes Wintergreen an attractive choice.

Winters has slowly whittled down cash in the fund to less than 20%. He likes having cash to invest when stocks get hit. "We want to take advantage of wild emotional swings in the market."

He's long-term oriented. On average, expect him to hold a stock at least five years. Finally, he has the vast bulk of his own considerable assets in the fund.

Are there negatives? Sure. I thought Winters would persuade some of the analysts he worked with at Mutual Series to join him. That hasn't happened. I also thought he would have more analysts by now. At the same time, I think he's probably capable of managing the relatively small assets he has alone, if necessary.

The other negative is the price tag. The expense ratio is a lofty 1.91%. But Winters argues -- convincingly, I think -- that Wintergreen is every bit as good as a first-rate hedge fund, albeit it's mostly a long-only fund. Most hedge funds, of course, charge much more. Still Legg Mason's Bill Miller is the only other manager for whom I'd be willing to pay this much money.

One last factor, what Winters would called a "soft factor." In the years I've known Winters, I've never heard him sound so relaxed and happy. There's obviously a lot less pressure in his current job than there was in supervising $30 billion at Mutual Series. That's a plus, too.

Steven T. Goldberg is an investment adviser and freelance writer.



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