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Shades of Value at a Top Fund Shop

An impressive strategy runs through Mutual Series, but the funds have key distinctions, as well.

Bridget B. Hughes, 03/18/2011

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One of the most appealing attributes at the Mutual Series group of funds is a cohesive investment culture and strategy that transcends time, market conditions, and portfolio managers.

That kind of continuity should help the funds' investors set appropriate expectations and maintain a familiarity with all of the portfolios, even through manager changes (many of which have occurred here during the past 15 years or so). It's helped the four older, more diversified funds (Mutual Shares TESIX, Mutual Beacon TEBIX, Mutual Quest TEQIX, and Mutual Global Discovery TEDIX) turn in 10-year performance figures at or in their respective categories' best quartiles.

In the past decade, which included two bear markets and during which the S&P 500 Index notched a meager 2.5% annualized return, the funds collectively have benefited from their sensitivity to valuation and focus on cash flow, dividends, and share buybacks. More specifically, hefty stakes in foreign companies, big weightings in cash-rich tobacco stocks, merger-arbitrage tactics, and occasional retreats to cash as markets peaked proved smart.

That doesn't mean, though, that there aren't meaningful distinctions among the funds, or that the portfolios don't change in substantive ways. While the past 10 years have been fruitful for all four funds, for example, performance during the more-recent five-year period has differed markedly--mostly a result of a single but important decision.

Common Ground
All of the investment ideas for the Mutual Series funds come from a centralized group of portfolio managers and analysts. Most of the portfolio managers still have stocks on their assignment lists; Beacon comanager Christian Correa, for example, covers Xerox XRX and Canadian small cap Open Text OTEX, in addition to heading up the research group's merger-arbitrage efforts. Philippe Brugere-Trelat not only comanages Global Discovery in addition to Mutual European TEMIX and Mutual International, but also follows A.P. Moller-Maersk (though that's his only stock-specific assignment).

The amount of stock overlap among the four diversified funds, each of which has at least two named portfolio managers, is not surprising, but remarkable nonetheless. As of the end of December 2010, all of the funds show meaningful stakes in British American Tobacco BTI, for example, as well as CVS Caremark CVS. Overall, the funds share 57 to 84 names (out of about 90 to 120), representing greater than 50% of each fund's portfolio. There remain large investments in tobacco firms around the world, as well as other consumer-goods companies such as Nestle NSRGY and Kraft Foods KFT.PAGEBREAK

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