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Warren Boroson
Warren Boroson

A Most Unusual Fund

October 08, 2007

Is there any other fund out there that carries a 5.5 % front-end sales charge — but if you send money in directly, you can avoid the sales charge?

That’s one of the unusual things about Empiric Core Growth A, a four-star Morningstar fund and Lipper Leader that’s been in existence since November 1995.

The manager, Mark A. Coffelt, 53, is a plain-spoken guy.

His fund is small, at $68 million? “Yes, but we’re out to change that.”

What stocks is he short—is he betting against? He’d rather not say, but they’re in the real-estate and consumer-staples sectors. Starbucks is the type of stock he might short, although he admires the management. Its lofty growth rate, he believes, simply cannot continue. (He isn’t short that stock. “Yet.”)

He’s averse to revealing his shorts—as are other managers I’ve interviewed—because people working at those companies might in the future regard him as having a target on his back.

Something else unusual about the fund: Morningstar classifies it as mid-cap blend, but it seems to be a go-anywhere fund—go anywhere where the “sweet spot” happens to be.

These days, he’s confident, large-cap and mid-cap growth are in the sweet spot, along with foreign stocks; value is in the doghouse. “People are worried, there’s talk of a recession, and they’re looking for more certain earnings.”

His fund has been heavily tilted toward foreign stocks. “Economies overseas are growing faster, and valuations are cheaper than in the S&P 500.” In fact, nine of the fund’s top ten positions recently were ADRs (foreign stocks trading on our exchanges), although there was wiggle room for Dell, AT&T and Novartis. But he’s cut back from 60% in ADRs to maybe 45%.

He’s avoiding consumer discretionary–“Rarely have we owned so little”—because he figures that Americans have learned, painfully, that their houses aren’t piggy banks, and they will start saving more. He’s also light on housing and retail—and on health care.

Where he’s heavy is in energy (“It should continue to be robust”) and in materials. The latter because he figures China and India will continue to grow apace and will need everything from aluminum to fertilizer.

A favorite stock of his, in fact, is Companhia Vale Do Rio Doce (RIO), a big company in Brazil that is into everything from fertilizer to gold. An ADR, it trades on the NYSE.

He also likes Chevron, the integrated oil company, and Acergy, a British company servicing sub-ocean oil wells.

Not that he’s a growth investor. Not long ago, he was into value stocks. But now, he believes, the separation between value and growth is as narrow as it’s been in a long time. That’s why he’s concentrating on growth measures (growth in earnings, return on capital), and not typical value measures (cash flow and book value). And looking for stocks of companies that don’t seem to have problems—such as Proctor & Gamble.

His is a quantitative fund, just focusing on numbers, but Coffelt changes the models readily, looking for better performance with lower risk. Focusing on things other than numbers, he believes, just wastes psychic energy.

He rarely visits companies. The few times he has phoned executives with questions, “I just should have sold on the spot.” He doesn’t want to visit the executives, either, because “Their job is to say that everything out there is okay.” And he doesn’t want to get personally attached to a company’s officers.

What does he think of index funds? “I have no problem with them. But I think you can do better if you have a well-thought-out strategy and you implement it consistently.”

He’s familiar with the writings of Peter Lynch and Warren Buffett—and Ben Graham, whom he quotes as saying that at certain prices every stock is a buy—or a sell.

Has any big fund company tried to buy him out? “Yes, but I have no interest. I want to do this till the day I die. I don’t want to work for anyone. I just do my thing every day, on my own schedule.”

Coffelt has a B.A. in economics from Occidental College in Los Angeles and an MBA from Wharton. He’s a Chartered Financial Analyst.

The fund has high expense ratio (1.62 percent), and a 0.25 percent 12b-1 fee for marketing expenses. It’s managed out of Austin , Texas , and the minimum first investment is $5,000.

About the author:

Warren Boroson
Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 3.0/5 (16 votes)


Queenofmay - 10 years ago    Report SPAM
Very informative. Five stars
Hameed - 10 years ago    Report SPAM
What has been his historical rate of return in the last couple of years?

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