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A Hidden Gem Gets Cheaper

Plus, Fairholme's Berkowitz increases AIG stake, and more.

Morningstar Analysts, 09/27/2010

A solid large-blend fund has just gotten cheaper. BBH announced a reduction in the net expense ratio for BBH Core Select BBTEX from 1.19% to 1%. The firm said it is passing on some of the fund's economies of scale to shareholders. The fund's assets have increased from less than $100 million in 2006 to more than $330 million today thanks to strong inflows and performance. (We profiled the fund in April.)

Rick Witmer, Tim Hartch, and Michael Keller manage this concentrated (it regularly holds around 30 stocks), low-turnover fund in a deliberate manner. They look for companies with great balance sheets, high returns on invested capital, and strong free cash flows whose shares are trading at 25% or more below their estimate of the stocks' intrinsic value. Since Witmer and Hartch took over in October 2005 (Keller became comanager in mid-2008) through Sept. 21, the fund has gained 5.1% annualized, while the S&P 500 Index and the typical peer have gained 0.6% and 0.3%, respectively.

Fairholme's Berkowitz Ups AIG Stake
Fairholme Capital, advisor to Fairholme Fund FAIRX, continues to increase its American International Group AIG stake. It now owns almost 33 million shares of the insurer, or 24.4% of its common stock, according to filings made this month with the Securities and Exchange Commission.

Fairholme manager Bruce Berkowitz began building a stake in insurer AIG earlier this year as part of a larger move into financial companies. In March, Fairholme Capital owned more than 13 million of AIG's shares, more than 20% of some tranches of the firm's convertible debt, and other AIG bonds. In April, Fairholme Capital indicated in a filing that it was AIG's largest shareholder after the U.S. government. As of the May 31 portfolio, the fund owned more than 28 million AIG shares, 6.8% of the fund's assets.

Fairholme is the top-performing large-blend fund over three-, five-, and 10-year periods, and it's up 7.7% for the year, while the S&P 500 Index is up 3.2% and the typical rival's gain is 2.3%.

Vanguard Launches Funds and ETFs Tracking Russell Indexes
Two weeks after it introduced a batch of new S&P domestic-equity index funds and exchange-traded funds, Vanguard rolled out seven passive stock funds and ETFs based on Russell benchmarks. The firm first filed for both the S&P and Russell index funds in June. The new funds will track the Russell 3000 as well as the value, growth, and blend portions of the large-cap Russell 1000 Index and small-cap focused Russell 2000. Institutional fund shares will charge 0.08% in fees, while the ETF shares will range from 0.12% to 0.20%. The minimum investment for the institutional shares is $5 million.

Vanguard also plans to launch its first municipal-bond index funds and ETFs as well as a new global real estate fund and ETF.

Dreman Steps Down as Co-CIO of Dreman Value Management
Longtime value investor David Dreman is stepping down as co-chief investment officer of Dreman Value Management, the firm he started more than three decades ago. E. Clifton Hoover, who has served as co-chief investment officer with Dreman since 2006, will become the sole CIO on Oct. 31. Hoover is also co-director of research, portfolio manager, and managing director. The transition has been planned for several years.

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