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Donald G. Smith, Founder and CIO Donald Smith & Co, is a deep-value manager employing a strict bottom-up approach. The firm generally invests in out-of-favor companies, those selling in the bottom decile of price-to-tangible book value ratios and that have significant earnings potential over the next 2-4 years.

The fund's managed value equity products range across the equity capitalization range from Large Cap to Micro Cap, the common factor being the employment of Smith's deep-value equity approach. With $3.2 billion in assets under management, Donald Smith & Co has returned 15.3% compound annualized return over the past 30 years, and over the last 10 years his firm has returned 12.1% compound annualized return versus 0.4% for the S&P 500.

In the latest 13-F filing for the December 2010 quarter, Smith & Co. reported that it has added a new position in Maryland-based utility Constellation Energy (NYSE:CEG), buying 3.48 million shares at an average price of $30.15, making it a top 10 holding in their $3.2 billion portfolio. Last Thursday, on April 28th, Chicago-based Utility Exelon (NYSE:EXC) and CEG announced that they had signed a definitive agreement to combine the two companies in a stock-for-stock transaction valuing CEG at just over $39 per share based on a conversion ratio of 0.93 and the current EXC share price of $42.17. This represents an almost 30% return in the six months since the firm bought the stock in the December 2010 quarter.

Besides his $104 million new buy of CEG in the December 2010 quarter, Donald Smith also made other major buys during the quarter, adding $49 million to his Overseas Shipholding Group Inc. (OSG) position and $43 million to his SanminaSCI Corp. (NASDAQ:SANM) position.

Table

Company

Ticker

Market Value
(as of 12/31/10 at time of filing)

Percent Outstanding Shares Controlled By Donald Smith & Co.

Tesoro Corp

TSO

$ 212 million

5.5%

Micron Technology Inc.

MU

$ 182 million

1.6%

Dillards Inc.

DDS

$ 176 million

7.0%

Yamana Gold

AUY

$ 141 million

1.5%

C N A Financial

CNA

$135 million

1.6%

Constellation Energy Group Inc.

CEG

$127 million

1.7%

Air France KLM

OTCQX:AFLYY

$ 120 million

2.3%

MI Developments Cl A

MIM

$ 116 million

8.2%

Ingram Micro

IM

$ 108 million

3.6%

Jetblue Airways Corp

JBLU

$ 108 million

3.6%


Donald G. Smith is a very savvy investor, and while he works only for investors in his hedge funds, a savvy investor can ride his coattails with knowledge of his holdings and reap the rewards in terms of long-term returns that handily beat the market averages.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are my ‘opinions’ and I may be wrong. I may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to my thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Source: After 30% Returns on Constellation Energy, What Else Is Donald Smith Buying?