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Funds that fight style drift
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August 20, 1999: 5:29 p.m. ET
Franklin Mutual stays strictly within its value mandate as some peers stray
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - With value mutual funds staging a healthy comeback this year, you'd think that managers in the sector wouldn't have to explain themselves any more.
But some value shops, like Franklin Mutual Advisers, are still swimming against the tide as their peers deliver good returns by drifting into different kinds of stocks.
"There are a lot of value investors who have done tremendous style drift," Rob Friedman, chief investment officer of Franklin Mutual. "The funds have drifted so dramatically that it's hard to compare us to them."
Style drift was among a number of topics that came up at a press briefing Franklin Mutual held this week at the Yale Club in New York. (Peter Langerman, chief executive of the company, is a Yale alum).
While Friedman didn't name any funds he thinks are guilty of style drift, a well-known example is the case of Legg Mason Value Fund, which won big with huge stakes in America Online (AOL) and Dell (DELL).
The six Franklin Mutual funds have $22 billion in management and include Mutual Shares Fund, up 13.4 percent year to date through July 31; Mutual Qualified Fund, up 14.30 percent in the same time; and Mutual Beacon Fund, up 15.09 percent.
Out of a universe of 278 mid-cap value funds tracked by Morningstar, the Mutual Shares ranked 61; the Mutual Qualified ranked 48; and the Mutual Beacon ranked 41.
"We buy what we think is cheap," Friedman said. "Our job is to react to other people's overreactions."
Friedman attributed part of the success to a decision to cut the number of stock holdings by about 40 percent earlier this year after the departure of famed stock picker Michael Price. He also pointed to the fund group's strict adherence to value investing.
Among Franklin Mutual's favorite stocks are glass bottler Owens-Illinois (OI), Banc One (ONE) and Greenpoint Financial Corp. (GPT), Friedman said.
In the international arena, Franklin Mutual manager David Marcus said he's finding a lot of great bargains in France. His favorite stocks include Suez Lyonnais des Eaux, among the largest water companies in the world. Marcus said his initial investment has tripled in the past three years or so.
Likewise, Marcus made a 35 percent profit on an investment in Pathe, France's largest film producer, when it was acquired by French conglomerate Vivendi.
"You buy these guys when nobody cares and you hang on to them," Marcus said.
Rescuers are still digging through rubble for survivors after a lethal earthquake rocked Turkey on Tuesday, and a Wall Street analyst said it's too soon to say what the impact will be on the country's economy.
Doug Beck, senior international funds analyst at Merrill Lynch, said one saving grace is that firefighters managed to extinguish a fire at Turkey's biggest oil refinery. Turkey imports most of its oil and would have been hit hard if they didn't have a way to refine it.
"It could be positive in one aspect, if you think of the rebuilding that will have to be done," Beck said.
The irony is the Turkish market had been up dramatically this year after the government undertook a string of reforms.
"Just when they make progress something like this happens," he said.
Who says Fidelity's Peter Lynch is on everybody's radar screen?
A new poll by Brill's Mutual Funds Interactive, a Web site that covers the industry, found that investors would rather dine with filmmaker Steven Spielberg than Lynch, billionaire investor Warren Buffet or Vanguard founder John Bogle.
Out of 626 people polled, 33 percent preferred Spielberg as dinner companion, compared with 30 percent for Buffet, 24 percent for Bogle and 14 percent for Lynch.
Yes, but can Spielberg give them investing tips before the dessert arrives?
Lastly, technology has lost some ground in a summer slowdown, but here are a few winners and losers among technology stocks tracked by Lipper Analytical Services.
At the top of the list is Amerindo Technology Fund, up 8.43 percent for the week Aug. 12 to Aug. 19 and up 111.04 percent year to date; followed by Monument Internet Fund, up 7.05 percent for the week and up 77.60 percent year to date; and WWW Internet Fund, up 6.92 percent for the week and up 34.07 percent for the year.
At the other end of the spectrum, the biggest loser for the week was Fidelity Select Electronics Portfolio, off 0.95 percent for the week but up 38.47 percent year to date; followed by Monterey Murphy Technology Fund, off 0.48 percent for the week and up 28.16 percent year to date; and Rydex Electronics Fund, investor class shares, up 0.11 percent for the week and up 42.11 percent for the year.
-- Staff Writer Martine Costello covers mutual funds for CNNfn.com. If you have any comments about mutual funds, you can contact her at cnnfn.interact@turner.com
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