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Chip Carlson, Greenspring

Chip Carlson's fund has been a safe haven for shareholders during the financial crisis.

Laura Lallos, 02/02/2009

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Headquartered between Wall Street and Washington--in a genteel suburban office park in Lutherville, Md.--Greenspring Fund GRSPX has seemed miles away from the fray. Of course, nothing escaped the year's market maelstrom. That said, the fund's 14% loss for the year through November was less than half that of the typical moderate-allocation fund (not to mention nearly 24 percentage points better than the S&P 500). This is the kind of performance shareholders no doubt hoped for from a fund that positions itself as a defensive play on the stock market. Now the fund is on the offense.

On Nov. 21, the day after U.S. automakers were sent home from D.C. with hats still in hand--and the S&P 500 plunged to its lowest close since 1997--manager Chip Carlson and first lieutenant Michael Fusting were in good cheer. In an interview from the small conference room in the company's modest suite, Carlson enthused, "The adrenaline is pumping! This market is certainly challenging, but every day, we are improving the portfolio." As hedge funds meeting margin calls fueled selling frenzies, Carlson and Fusting were snapping up short-term corporate bonds and convertibles at double-digit yields.

Immune to the Bailout
This may sound too good to be true to today's twice-shy investors, but Carlson brings clarity and confidence to the moves. "It's hard to envision how this is not a successful strategy--as we've been pursuing it," Carlson says. "We do balance-sheet analysis for significant cash reserves, and much of the portfolio is in bonds of companies that could write a check to cover their total debt now if they wanted to. Whether the Washington bailout succeeds isn't going to affect these investments."

Fusting adds, "With a bond that's due in a year, you don't have to have as much insight into the future as you do with one due in 10. And at least 90% of the bonds in the portfolio are the next bond or two to mature in the company's capital structure. If the company has bank financing, it is due after the bond."

In other words, these companies can pay back the debt Greenspring holds whether or not they have access to increasingly scarce credit.

Advisor Drew Tignanelli, president of Hunt Valley, Md.-based Financial Consulate, who has invested with Greenspring for a decade, agrees. "Their strategy is the right way to go. These are corporations with clean balance sheets, companies that can pay their debt even in dire times. You can get 10% to 17% yields as other institutions liquidate, and Greenspring has a tremendous opportunity: It is small enough that it can take advantage of a $10 million bond."PAGEBREAK

Size isn't the $277 million fund's only advantage. Carlson and Fusting are grateful that they have had money to spend. Even as some funds have had to sell across the board to meet redemptions, Greenspring's loyal advisors and shareholders have contributed net infl ows.

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