Mutual Series Funds After Michael Price – Brief Article
Steven T. Goldberg
When rookie Carl Yastrzemski trotted out to left field at Boston’s Fenway Park in 1961 to take the place of Ted Williams, he was greeted with catcalls of “Carl who?” Robert Friedman, who took charge of the Mutual Series funds a year ago this month from investment legend Michael Price, must know how that feels.
Ever since Price announced in 1997 that he was leaving, investors have been pulling money out of the Mutual funds–which, like all funds that specialize in out-of-favor stocks, badly trailed the major stock indexes in 1997 and 1998. From a peak of $33 billion, the funds’ assets are now down to $22 billion. Friedman seems unperturbed. “Value is out, so now is probably a good time to be a value investor,” he says.
Price left big shoes. In the ten years through 1997, his flagship fund, Mutual Shares, came within a whisker of matching Standard & Poor’s 500-stock index’s return while exhibiting 30% less volatility. But Friedman is having a good rookie year. Value is regaining some of its luster, and the funds are all ahead of the S&P 500.
THE NEW ERA. Friedman, 40, couldn’t be more unlike Price in personality and manner. He’s a thin, balding fellow with a gray beard and professorial bearing. He’s also soft-spoken and polite and has a precise manner–all a marked contrast to the rumpled, volatile Price, who always seemed to be in motion and was often curt with his senior people. Friedman says he wants to create a “value think tank” with his six senior managers and 20 analysts.
The Mutual Series formula hasn’t changed in the 50 years since Max Heine, a Jewish refugee from Nazi Germany, founded Shares. The funds’ main ingredient is unloved stocks. “Four out of five stocks that are beaten-up deserve to be beaten-up,” Friedman says. “Our job is to find the fifth stock.” Next comes arbitrage–buying stocks involved in deals before those deals close, to harvest the small price disparities.
Finally, the funds look for securities of bankrupt or otherwise distressed companies. Friedman recalls how Heine bought bonds of the bankrupt Penn Central railroad in the early 1970s after figuring that the steel in its tracks alone was worth enough to pay them off. “We still do the same things,” Friedman says. His point: These were great, low-risk funds before Michael Price came, and remain so without him.
What Price added to this stew, Friedman says, was a relish for complaining publicly when a company wasn’t doing all it should to realize its value. Friedman continues this tradition, recently rattling managements of Commercial Federal Bancorp and Thermo Electron.
Friedman and his six senior managers all worked under Price for at least eight years, and they claim to have taken on some of his ruthlessness. Says senior manager Lawrence Sondike: “We love disappointments, we love things out of favor, we love broken deals, we love litigation, we love pain when it’s not ours.” Still, they’re far from a proven commodity. As Raymond Garea, a top deputy to Price and now Friedman, once noted: “The principles of value investing are easy to explain and understand. Implementation is not so simple. It’s one part skill and one part art.”
GOOD MOVES. Friedman comes across as smart and ambitious. A year into his tenure, he has put his stamp on the funds. He assigned two-person teams to head all but one of the six funds and tied their compensation to the results. (Friedman himself is co-manager of small-company Mutual Discovery.) He also told his managers to concentrate their bets. For instance, Mutual Shares now owns 160 stocks, down from 300 under Price. And he is trying to make clear distinctions among the three biggest funds. Mutual Shares holds about 20% of assets in foreign stocks and invests in large companies. Mutual Qualified has about 25% invested abroad and owns slightly smaller companies. Mutual Beacon has about 30% in foreign stocks and owns even smaller companies.
Should you pay a 5.75% sales charge to invest in one of these funds? No, but if you already own A shares, you might want to hang on to them. And if you own no-load Z shares issued before Franklin Templeton took over, consider buying more. To return to baseball: Carl Yastrzemski was no Ted Williams, but he did end up in the Hall of Fame.
COPYRIGHT 1999 The Kiplinger Washington Editors, Inc.
COPYRIGHT 2000 Gale Group