54.3 F
San Diego
Thursday, Mar 28, 2024
-Advertisement-

Mutual Fund Manager Is in for the Long Haul

When the Dow Jones industrial average fell more than 200 points one day last week, San Diego mutual fund portfolio manager Art Johnson hardly blinked.

“Quite frankly, we don’t care what the stock market does day to day, week to week, year to year,” said Johnson, who runs an investment management firm and a mutual fund called Mundoval from his La Jolla office.

Though that response may surprise many stock investors, Johnson and other devotees of a value investing strategy say short-term fluctuations don’t count; they’re in the market for the long term.

But even value investors, or those buying stocks of companies that trade at reduced prices but have excellent growth potential, look at how their picks are doing sometimes, as does Johnson.

His package of some 40 stocks that make up the fund have racked up some impressive results since the fund was launched in September 2004. Through the end of March, Mundoval had an average annual return of 5.49 percent. In comparison, the Standard & Poor’s 500 index fund had an average return of 2.9 percent during the same period.

While many of Johnson’s clients were happy last year as the overall equity markets surged back from the terrible tanking in late 2008 to early last year, some decided they couldn’t handle the heavy losses.

“Some of our clients questioned our approach, and began to wonder if it made sense to buy and hold when, for the most part, people were running for the exits,” he said.

Investing in Large Companies

Johnson’s fund invests in stocks of larger, established companies that he views as undervalued to their true worth, and which will appreciate in price over several years. Among Mundoval’s top holdings as of March 31 were Ingersoll-Rand Co., WellPoint Inc., 3M, and Microsoft. Its biggest sector concentration was health care, with about a quarter of the portfolio.

Johnson says when all the world’s financial markets went into a swan dive in 2008 and the early part of 2009, it created some of the best buying opportunities in the last 50 years. Well-run and cash-rich companies such as Microsoft and Pfizer Inc. were trading at prices that were far below what Johnson says they were actually worth.

Rather than sell some of the stocks that Mundoval held as the market crashed, Johnson increased the stakes on some of his key picks. The markets generally rebounded last year, resulting in hefty profits on many of those stocks.

Johnson got into the money management industry about 16 years ago when he joined Brandes Investment Partners, starting out as a portfolio administrator. In 2002, he decided the travel involved with the job was too much and went out on his own, forming La Jolla-based A.Q. Johnson & Co. Inc. to manage investments of a small group of clients.

As of the end of March, Johnson had about 100 clients and managed about $47.8 million in assets, including the Mundoval fund assets totaling $10 million.

By many mutual fund standards, that’s puny, but the biggest funds can be shackled by their enormous size, he says.

“I’d love to attract more capital with the right type of shareholder,” said Johnson, adding that he could easily manage the fund if it rose to 10 times its current size.

Financial Crisis Took Its Toll

The financial crisis took its toll on the number of mutual funds, which dropped to 7,691 at the end of 2009 from 8,022 at the end of 2008.

Massive outflows occurred during the bad markets due to the drop in daily price of the fund, which in turn causes sponsors to either close funds or merge them into other funds, says Mike McNamee, spokesman for the ICI, aka the Investment Company Institute, a mutual fund trade association.

As of the end of last year, there was $11.1 trillion invested in mutual funds, he says.

Carolyn Taylor, president of Weatherly Asset Management, a Del Mar investment firm with about $300 million under management, says there could be benefits in investing with a relatively new fund that shows a good track record.

But she notes that Mundoval’s relatively high minimum investment of $10,000 for a non-retirement account, and an investment management fee of 1.5 percent was above average.

Read the Prospectus

Tony Cherin, finance professor at San Diego State University, says the big advantage of investing in a mutual fund compared with direct stock investing is the diversification one gets from a bundle of stocks, mitigating the risk.

While a small fledgling fund such as Mundoval may look like a winner now, investors should carefully read the prospectus of any fund to understand its strategy and risks, he says. Another key item to research is whether the principals are investing in the fund.

At Mundoval, all three of its employees invest in the fund, according to its marketing manager.

Johnson declined to say how much he spent to launch the fund, but according to another fund entrepreneur, starting a new fund could take at least $1 million.

Hank Mulvihill, who launched the Strategic Investing Long Short Fund this month in Dallas, said “there’s a ton of lawyering up front,” along with a bunch of costs related to auditing and regulatory compliance.

Mulvihill, who was in San Diego last month to drum up interest in his fund, says it differs from most other mutual funds because the fund’s charter is not tied to any particular strategy or sector and has the ability to change course quickly, buying and selling when the right time presents itself, shorting investments (betting the investments will decline in value), or switching to all cash at any given time.

Told of Mundoval’s long-term value strategy, Mulvihill says he agrees with buying and holding stocks to a certain degree, but doesn’t agree with holding them when the market turns sour.

-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-
-Advertisement-