The NYT examines several mutual funds that did well in the 2nd quarter.
Among them is Longleaf Partners Small-Cap Fund, managed by Mason Hawkins and Staley Cates.
Their fund, which carries an expense ratio of 0.92 percent, returned 3.71 percent in the second quarter.
Mr. Hawkins and Mr. Cates like to buy the sort of dirt-cheap stocks that Warren E. Buffett has famously called “cigar butts.” These days, Mr. Buffett typically skips over castoffs, opting to buy pricier fare as long as he’s confident that a company has a competitive advantage. But Mr. Hawkins and Mr. Cates still seek those half-smoked stogies. “We’ll never compromise the principle about buying really cheaply,” Mr. Cates said.
Their refusal to consider anything but bargains means that their fund, which is closed to new investors, can build up a hefty hoard of cash. On May 31, in fact, cash accounted for about 15 percent of its $3.4 billion in assets. “We demand high quality but want a great price, and there typically aren’t a lot of those stocks around,” Mr. Cates said.
The managers aim for shares that trade for no more than 60 percent of their estimate of value.
Often, that means betting on companies with overlooked assets. Consider Dillard’s, the department store chain. When Longleaf bought in several years ago, the stock was trading in the teens, but its real estate alone — Dillard’s owns most of its stores’ buildings — was worth $60 to $70 a share, Mr. Hawkins says. The company was struggling but had laid plans for a turnaround, and the Longleaf managers believed that it could deliver. Their faith has begun to pay off: Dillard’s ended the quarter at more than $50 a share.
Longleaf typically owns just a handful of stocks, and Mr. Hawkins and Mr. Cates stick with favorites for years. Thus, at the end of March, the fund had only 22 holdings and an average annual turnover of 17 percent, according to Morningstar.
Read about the other funds in the article here.