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John Keeley is the President and Portfolio Manager at Chicago-based Mutual Fund Company Keeley Asset Management Corporation (KAMCO). The firm, established by John Keeley in 1982, manages $6.5 billion in small-cap and mid-cap value funds, and employs a bottom-up, value-driven approach to selecting investments in companies undergoing corporate restructuring events such as spin-offs, mergers and divestitures, and any other instances in which change leads to inefficiencies or unrecognized value.

The fund holds a diversified portfolio of over 400 positions, and is over-weight Transportation, Basic Materials, and Industrial sectors, and it is under-weight Healthcare, Energy and Technology Sectors. Within those Sectors, they were over-weighted in the Regional Bank Group, the Construction Group and the Industrial Machinery Group in the quarter ending December 2010, and per the 13-F filings for the most recently reported March 2011 quarter, they decreased their weighting in each of those groups by between 10-15% but still continued to be over-weight those three groups.

Over 90 percent of the company’s assets are deployed in small- and mid-cap companies, with each accounting for between 45-50% of the assets. Furthermore, their portfolio turnover is between 10%-15% implying a holding period approaching eight to ten years. They offer six funds, including an Alternative Value Fund. Their flagship Keeley Small Cap Value Fund with $3.8 billion in assets returned 9.3% over the past 10 years, 701 basis points ahead of the S&P 500.

Based on a review of available SEC 13-F filings, we determined that KAMCO started buying Ralcorp Holdings Inc. (RAH) since the quarter ending March 30, 1999, bought at a price between $15 and $20, when they held 165,200 shares. Since then, they have kept accumulating RAH shares, holding 0.8 million shares or 1.5% of the outstanding shares of the company. On May 4th, ConAgra Foods (NYSE:CAG) announced that they had made a proposal to acquire RAH for $86 per share in cash, netting KAMCO almost a five-fold return to their initial investment over the last eleven years.

John Keeley is a very savvy investor, and besides RAH, his initial investment in Danvers Bancorp Inc. (NASDAQ:DNBK) in the quarter ended June 2010, which was also recently acquired in January 2011 for $22, represented almost a 50% return in less than one year. Of the 436 positions in their portfolio, both RAH and DNBK represent high conviction buys as they are currently their seventh and thirteenth largest holdings. The following summarizes their other high conviction picks and pans based on the latest reported 13-F filing for the March 2011 quarter:

  • Penske Automotive Group (NYSE:PAG) operates 323 franchised car dealerships in the U.S. and outside the U.S., mostly in the U.K.
  • Federated Investors CL B (NYSE:FII) provides investment advisory services to mutual funds, separate accounts and other sponsored products.
  • Walter Energy Inc. (NYSE:WLT) produces hard coking coal from underground mines for by the steel industry.
  • Capitol Federal Financial Inc (NASDAQ:CFFN) is a holding company for Capitol Federal Savings Bank operating via 46 offices in KS and MO.
  • Kansas City Southern (NYSE:KSU) owns and operates domestic and international rail networks in the U.S., Mexico and Panama.
  • Joy Global Inc (JOYG) manufactures continuous miners, long-wall shearers, electric shovels and blast-hole drills for coal and mineral extraction.
  • Bemis Inc. (NYSE:BMS) manufactures flexible packaging products and pressure-sensitive materials primarily for the food industry.
  • Chemtura Corp. (NYSE:CHMT) manufactures a variety of polymer and specialty chemical products for agriculture, automobile and construction markets.
  • Toll Brothers Inc. (NYSE:TOL) builds single-family detached and attached homes in luxury communities for move-up, empty nester and adult home buyers.
  • Littlefuse Inc (NASDAQ:LFUS) manufactures circuit protection systems and electrical fuses for the electronics, automotive and electrical markets.
  • Flowserve Corp (NYSE:FLS) manufactures engineered pumps, valves, mechanical seals for engineering and construction applications, OEMs and end users.
  • Lufkin Industries Inc. (NASDAQ:LUFK) manufactures oil field pumping units, power transmission products and related services.
  • Viewpoint Financial Group Inc (NASDAQ:VPFG) is a holding company for viewpoint Bank operating via 43 offices in TX.
  • Oritani Financial Corp. (NASDAQ:ORIT) is a holding company for Oritani Savings Bank operating via 22 offices in NJ.

Table

Company

Ticker

New or Increased or Decreased Position

Market Value at end of March 2011 Quarter

Change in Value from Prior Quarter

Penske Automotive Group Inc

PAG

New Position

$ 39 million

$ 39 million

Federated Investors Inc

FII

Added

$ 42 million

$ 30 million

Walter Energy Inc

WLT

Decreased

$ 74 million

$ 27 million

Capitol Federal Financial Inc

CFFN

New Position

$ 26 million

$ 26 million

Kansas City Southern

KSU

Decreased

$ 76 million

$ 21 million

Joy Global Inc

JOYG

Decreased

$ 53 million

$ 19 million

Bemis Inc.

BMS

Decreased

$ 4 million

$ 18 million

Chemtura Corp.

CHMT

Added

$ 19 million

$ 18 million

Toll Brothers Inc.

TOL

Decreased

$ 1 million

$ 17 million

Littlefuse Inc

LFUS

Added

$ 20 million

$ 16 million

Flowserve Corp

FLS

Decreased

$ 34 million

$ 14 million

Lufkin Industries Inc.

LUFK

Decreased

$ 53 million

$ 14 million

Danvers Bancorp Inc.

DNBK

Decreased

$ 0 million

$ 12 million

Viewpoint Financial Group Inc.

VPFG

Added

$ 19 million

$ 12 million

Oritani Financial Corp.

ORIT

Added

$ 22 million

$ 12 million

Credit: Historical fundamentals, including operating metrics and stock ownership information were derived using I-Metrix® by Edgar Online®, Zacks Investment Research, DailyGraphs®, Thomson Reuters and Briefing.com. Fund data, including assets under management and firm profiles are sourced mostly from Hedgetracker.com. The information and data are believed to be accurate, but no guarantees or representations are made.

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 consider your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks, including loss of principal.

Source: After Nearly Five-Fold Return on Ralcorp Holdings, What Guru John Keeley Is Buying