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By Russel Kinnel | 07-22-2015 12:00 PM

Opportunity in the Unpopular?

Why Goodhaven's Larry Pitkowsky likes underperformers WPX Energy and Barrick Gold, as well as lesser-known Walter Investment Management.

Russ Kinnel: Hi, I'm Russ Kinnel. I'm director of manager research for Morningstar. I'm joined today by Larry Pitkowsky of GoodHaven Fund (GOODX), a fund launched about four years ago.

Larry, thanks for joining us.

Larry Pitkowsky: Russ, it's nice to be here.

Kinnel: You have an interesting fund that has a mix of conventional and off-the-beaten-path names, and performance has kind of reflected that. You had a very strong start and then have slumped since then. I wanted to ask what your take is on that. Does that mean your strategy has been out of sync with the market or is it more of a matter of top holdings not being in favor?

Pitkowsky: Russ, when you manage a concentrated portfolio that looks nothing like the index, it's inevitable that you're going to go through some periods where you perform much worse than the index. That's not a flaw; that's just a feature of running a portfolio in the style that we've run--one in which we've had much success over the decades.

Kinnel: And you clearly are someone who invests with conviction. You put a lot in your top names. Why is that?

Pitkowsky: We like to say that it's much easier to try to know a lot about a few things than to know a little bit about a lot of things. That's how we're comfortable investing our own money. That's how we've always done it, and it has worked very well for us over the years.

Kinnel: Some of your names are well known. I look at the financials--I see [Federated Investors (FII)]. Lots of people own that. But then you also have a big position in Walter Investment Management (WAC). Can you tell us a little bit about that one?

Pitkowsky: We tend to go where the opportunities are. When we started the fund, there were many opportunities in some more-recognizable companies that were undervalued and that we thought set us up for some very attractive potential gains. It worked out very well.

Over the last year and a half or so, we found opportunities in some companies that are not really household names. Walter Investment Management, which we've made a much bigger holding recently, is one of them. They are a special-mortgage servicer. It is a niche part of the mortgage-servicing industry that is dominated by a handful of companies. We think there is attractive growth ahead. We think the company is well run, and we think the stock is very cheap.

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