Take the four best seekers of undervalued stocks you can find and give each of them one-fourth of assets to invest in his favorite eight to 15 stocks. In essence, that's the game plan for newly hatched Masters' Select Value fund. It may just be a successful formula.
The masters of investing in this instance are a well-known quartet: Mason Hawkins of Longleaf Partners, Bill Miller of Legg Mason Value, William Nygren of Oakmark Select and Lawrence Sondike of Franklin Mutual Shares.
Masters' Select Value is the third fund Gregory's firm has put together in essentially the same manner. Masters' Select Equity has returned an annualized 19.9 percent over the past three years — a whisper ahead of Standard & Poor's 500-stock index.
Select Equity's seven stock pickers represent a variety of styles and approaches. In addition to value mavens Hawkins and Miller, they include growth investors Foster Friess of Brandywine fund and Spiros Segalas of Harbor Capital Appreciation.
Occupying the middle ground are Christopher and Shelby Davis of Selected American Shares and Dick Weiss of Strong Opportunity — growth investors who like out-of-favor companies. Together, their picks for Select Equity have beaten the returns of their own funds by an average of almost five percentage points annualized.
Launched in December 1997, Masters' Select International is doing a better job than Select Equity against its benchmarks. The fund has returned an annualized 31.4 percent since its inception, nearly double the return of the major foreign indexes.
Other fund experts don't think that this kind of concentrated investing works, and some focused funds have been duds. The secret may well be that concentrated stock picking works best when talented stock pickers have the investment wind at their backs.