With a rock-solid belief in their strategy, the managers of Homestead Value confidently go about their business.
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The economic crisis hasn't shaken the foundation of Homestead Value Fund
Indeed, the fund's longtime managers have been calmly conducting business as usual. The fund had no exposure to large-cap value disaster American International Group
"Although we make sure to maintain an open curiosity [about new investments], sometimes it's best to let things just percolate along," says Ashton, who came to Homestead Funds from Capital Research and Management in 1999. Indeed, the team's picks sometimes require patience. The team's investment process is "the exact opposite of that used by relative-strength or trend followers," says Peter Morris, who has run the fund with Stuart Teach since its 1990 inception. "Often, when we buy a stock, its relative strength is negative." The managers move deliberately, generally building positions slowly and selling gradually.
The team also plays confidently. This is a concentrated portfolio, with 45 holdings as of the end of 2008, and almost no cash. The managers may seek out companies in trouble, but they require sound balance sheets, healthy cash flow, and demonstrated strength in particular areas of business--and reason to anticipate a turnaround, such as a change in leadership. That fosters the possibility that "others might recognize the value for us," Ashton says, and acquire the company. Former holdings Wendy's International and IKON Office Solutions were bought out in 2008.
The idiosyncratic portfolio has a hardware stake nearly three times the large-cap value average. Hewlett-Packard HPQ, Dell
Dell, Intel, and Cisco were added as value opportunities arose in 2006 and 2007. Intel, for example, was under pressure from competitor Advanced Micro Devices
Ashton expects that these are investments for the long haul, as an improving economy expands the market for the companies' ever-advancing technologies. "One thing I've learned here is that not being in a hurry can yield benefits," Ashton says. "A traditional value shop would have let Hewlett-Packard go earlier in the story, but there is more to come. The acquisition of [IT service provider] EDS opens lots of doors."