Short-term investing is difficult in volatile markets. Look to
this fund to pick up high-quality companies that will remain strong
through different economic cycles
Croft Value Fund
(CLVFX) has proved it can weather the storm. During the past five
years, the fund's total return increased 25 percent, while the
S&P 500's gained just 9 percent. Over the past 10 years, total
return rose 49 percent, while the benchmark dipped slightly.
During the 2008 economic downturn, Croft Value faltered in step
with the broader market. But co-managers Kent Croft, his younger
brother Russell and their father Gordon stood by their investment
strategy and emerged from the recession stronger than ever. They
even took advantage of market volatility to pick up quality
companies at a discount.
One of these picks is now a top-10 holding: General Cable (
), a manufacturer and distributor of copper, aluminum, fiber-optic
wire and cable products. In March 2009 General Cable shares traded
at a deep discount, and Croft Value increased its position. The
stock has since doubled.
Croft Value's investment strategy is simple but rigorous.
Management conducts extensive research to generate hundreds of
investment ideas from internal and external sources. The managers
consistently monitor about 200 stocks to build a portfolio of 60 to
80 names via a bottom-up approach. The fund seeks steady-Eddie
names with unique ideas and growth potential that trade at a
discount. The managers also adopt a contrarian perspective on
stocks that have fallen out of favor.
One example of this approach is Foster Wheeler (
), an international engineering and construction firm. Management
added Foster Wheeler to the portfolio in 2005, shortly after the
firm had emerged from bankruptcy. At the time, investors didn't
like the stock's short-term potential, but Croft Value's management
knew the company would right itself and find favor in the
Croft Value picks up stocks at low valuations, generally at 50
to 80 cents on the dollar. The long-term investment focus results
in low turnover, keeping the fund tax-efficient for its
shareholders. Over the past five years Croft Value has sported an
average turnover rate slightly over 11 percent, while its peers
have seen turnover rates that approach 100 percent.
Management believes that any
long-term portfolio needs exposure to the energy sector,
particularly energy assets of strategic important to the US.
"Given that most of the energy assets around the world are
either state-owned or in countries that may not be favorable to the
US, for the long run it's important to focus on energy companies
that help the US gain energy independence" Kent Croft said.
The price of oil has performed well in past months, but natural
gas prices have lagged--making natural gas a contrarian play with
promising long-term potential. Exploration and production companies
are discovering promising new shale gas plays and the next
generation of power plants will likely be gas-fired. Companies are
also finding creative ways to use natural gas whether it's for
gas-powered cars or clean burning power plants.
Timber is another sector with long-term growth potential. Timber
is a unique asset because it revolves around the natural life cycle
of a tree. When there isn't as much lumber being cut, timber
companies will stop felling trees. But when they stop production,
their asset grows more valuable. This means that once cutting
resumes, the value of timber has appreciated. And while lumber
cutting is down at present, production is expected to rebound.
Investments in timber have provided long-term profit gains for
investors. Although returns have lost their luster over the last
five to six years, it's created a buying opportunity. Croft Value
), which owns 6 to 8 million acres of prime timberland in the US
and recently converted to a real estate investment trust.
Management added Weyerhaeuser to
the portfolio in order to take advantage of the firm's
underappreciated value and an upcoming dividend.
"The timber assets alone are worth more than the price of the
stock," Kent said. "And although the firm is not currently paying a
high dividend we expect large dividend growth next month."
Over the past 10 years stocks have underperformed Treasuries by
the greatest margin seen since 1900. But history shows that the 10
years following such a period have been kind to stocks; equities
have returned an average of 13.5 percent per year. Should history
repeat itself, Croft Value is well-positioned to reap the
What's more, the managers eat their own cooking. Both management
and the advisory company, Croft Leominster, are heavily invested in
Croft Value, yet another vote of confidence for this family-run